7-8: Why do most companies use normal or standard costing? After all, actual cos

Question

7-8: Why do most companies use normal or standard costing? After all, actual costing gives the actual cost, so the firm could just wait until it knows what the cost will be.

I think that companies use normal or standard costing because that is the easiest, and most common methods used for businesses.


8-4: What is the distinction between equivalent units under the FIFO method and equivalent units under the weighted-average method?

the difference is that one method has the ability to do things more accurately then the other.

Can some one help?

Explanation / Answer

7-8. Standard costs are predetermined unit costs , which companies use as measures of performance. A standard is a benchmark or norm for measuring performance.Standards are also widely used in managerial accounting where they relate to the quantity and cost of inputs used in manufacturing goods or providing services. Actual quantities and actual costs of inputs are compared to these standards. Manufacturing, service, food, and not-for-profit organizations all make use of standards to some extent.A standard cost card shows the standard quantities and costs of the inputs required to produce a unit of a specific product. 8-4 Equivalent units-FIFO Method: The computation of equivalent units under the FIFO method difers from the computation under the weighted -average method in two ways. First, the units transferred out is divided into two parts. One part consists of the units from the beginning inventory that were completed and transferred out, and the other part consists of the units that were both started and completed during the current period. Second, full consideration is given to the amount of work expended during the current period on units in the beginning work in process inventory as well as on units in the ending inventory. Thus, under the FIFO method, both beginning and ending inventories are converted to an equivalent units basis.For the beginning inventory, the equivalent units represent the work done to complete the units; for the ending inventory, the equivalent units represent the work done to bring the units to a stage of partial completion at the end of the period. Weighted - Average Method: Under the weighted -average method, a departments's equivalent units are computed as follows: Equivalent units of production= Units transferred to the next department or to finhed goods + Equivalent units in ending work in proces inventory. Computation of the equivalent units of production involves adding the number of units transferred out of the department to lthe equivalent units in the department's ending inventory. There is no need to compute the equivalent units for tlhe units transferred out of lthe department- they are 100% complete with respect to the work done in that department or they would not be transferred out. In other words, each unit transferred out of lthe deparatment is counted as one equivalent unit.

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