Wednesday, January 21, 2009

FIFO Method Weighted Average Method

Which accounting method is better for manufacturing firms to use for cost control, FIFO or weighted-average method?

Accountants often consider the FIFO method superior to the weighted-average method for cost control in managerial accounting environments. The reason for this is current performance should be measured in relation to costs of the current period only.

The weighted-average method mixes these costs in with costs of the prior period. Thus, under the weighted-average method, the department’s actual performance in the current reporting period is affected by what has happened previously in earlier periods.

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