Beginning Work in Process Inventories First In First Out (FIFO) Costing Method:

It is possible to keep beginning work in process inventory costs separate rather than average them in with the additional new costs incurred in the next period. This procedure gives separate unit costs (1) for beginning work in process units completed and (2) for units started and finished in the same period. 
Some accountants believe that the beginning work in process costs should be kept in tact, adding only that portion of additional costs required to complete units in the beginning work in process. Under the first in first out (FIFO) costing method, the cost of completing units in process at the beginning of the period is computed first,, followed by the computation of the cost of units started and finished within the period. This procedure leads to at least two different unit costs for work completed within a specific period. The averaging process produces only one completed unit cost.

Example:

The Clonex Corporation
Blending Department
Cost of Production Report - FIFO Costing
For the month of February, 19__

Quantity Schedule:
Units in process at beginning (all materials 1/2 labor and factory overhead FOH)		4,000
Units started in process		40,000	44,000
		-------	=====
Units transferred to next department		38,000
Units completed and on hand		1,000
Units still in process (all materials, 2/3 labor and factory overhead)		3,000
Units lost in process		2,000	44,000
		-------	=====
Cost Charged to the Department:		Total Cost	Unit Cost
Work in process beginning inventory		$4,440	--
Cost added by department:
Materials		$19,480	$0.522
Labor		24,180	0.620
Factory overhead (FOH)		22,580	0.579
		-------	------
Total cost added		$66,600	1.721
		-------	=====
Total cost to be accounted for		$71,040
		======
Cost Accounted for as Follows:
Transferred to next department:
From beginning inventory:
Inventory cost	$4,440
Labor added (4,000 × 1/2 $1.721 × 0.620)	1,240
Factory overhead (4,000 × 1/2 $1.721 × 0.579)	1,158	$6,638
	------
From current production:
Units started and finished (34,000 × $1.721)		58,517*
Work in Process - ending inventory:
Completed and on hand (1,000 × $1.721)		1,721
Materials (3,000 × 0.522)		1,566
Labor (3,000 × 2/3 × 0.620)		1,240
Factory overhead (3,000 × 2/3 $1.721 × 0.579)		1,158	5,685
		-------	-------
			$71,040
			======

* 34,000 units × $1.720 per unit = $58,514. To avoid decimal discrepancy, the cost transferred from current production is computed as follows:
$71,040 - ($6,838 + $5,685) = $58,517

Additional Computations:

Equivalent Production:	Materials	Labor and FOH
Transferred out	38,400	38,400
Less beginning inventory (all units)	4,000	4,000
	---------	---------
Started and finished this period	34,000	34,000
Add beginning inventory (Work this period)	-0-	2,000
Add ending inventory:
Completed and on hand	1,000	1,000
still in production	3,000	2,000
	-------	-------
	38,000 units	39,000 units

Unit cost:

Materials = $19,840 / 38,000 = $0.522 per unit

Labor = $24,180 / 39,000 = $0.620 per unit

Factory overhead = $22,580 / 39,000 = $0.579 per unit