Question: The outcomes of the four an essential steps are commonly presented in a production cost report. The production price reportA report the summarizes the production and cost task within a department for a reporting period.

You are watching: The cost of production report reports the cost of the goods sold.

summarizes the production and cost activity within a department for a report period. That is merely a formal an introduction of the 4 steps performed come assign costs to units transferred out and units in ending work-in-process (WIP) inventory. What go the production price report look choose for the Assembly room at desk Products, Inc.?

 

Answer: The production price report because that the month of might for the Assembly department appears in number 4.9 "Production price Report for workdesk Products’ Assembly Department". Notification that each section of this report corresponds with one of the 4 steps explained earlier. We carry out references come the adhering to illustrations so you can review the detail supporting calculations.


Figure 4.9 Production price Report for desk Products’ Assembly Department

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a Total prices to it is in accounted because that (step 2) need to equal total costs accounted for (step 4).

b Data room given.

c This section comes from Figure 4.4 "Flow of Units and Equivalent Unit Calculations for desk Products’ Assembly Department".

d This section comes from Figure 4.5 "Summary of costs to it is in Accounted because that in desk Products’ Assembly Department".

e This section comes from Figure 4.6 "Calculation the the expense per tantamount Unit for desk Products’ Assembly Department".

f This section originates from Figure 4.7 "Assigning expenses to products in desk Products’ Assembly Department".


How Do managers Use Production price Report Information?

Question: although the production expense report provides information essential to transfer costs from one account to another, managers likewise use this report for decision-making purposes. What important questions can be answered using the production price report?

 

Answer: A production cost report helps managers answer several vital questions:

how much does it cost to develop each unit the product for each department? i m sorry production price is the highest—direct materials, straight labor, or overhead? Where room we having challenges in the production process? In any details departments? are we see any far-reaching changes in unit prices for straight materials, straight labor, or overhead? If so, why? How plenty of units flow through each handling department each month? Are improvements in the production procedure being reflect in the cost per unit indigenous one month to the next?

Beware of solved Costs

Question: Why can the per unit price data provided in the production cost report be misleading?

 

Answer: once using info from the production cost report, managers must be careful not to assume the all production prices are variable costs. The CEO of workdesk Products, Inc., Ann Watkins, to be told the the Assembly department price for each desk totaled $62 because that the month of might (from number 4.9 "Production expense Report for workdesk Products’ Assembly Department", step 3). However, if the firm produces an ext or fewer devices than were created in May, the unit cost will change. This is due to the fact that the $62 unit cost includes both variable and fixed prices (see chapter 5 "How execute Organizations identify Cost actions Patterns?" because that a comprehensive discussion that fixed and variable costs).

Assume direct materials and direct labor are variable costs. In the Assembly department, the variable costs per unit associated with direct materials and also direct labor of $50 (= $30 straight materials + $20 direct labor) will remain the very same regardless that the level the production, in ~ the pertinent range. However, the remaining unit product cost of $12 associated with overhead must be analyzed more to recognize the amount the is change (e.g., indirect materials) and also the amount the is addressed (e.g., factory rent). Managers must recognize that fixed expenses per unit will readjust depending ~ above the level of production. Much more specifically, Ann Watkins must know that the $62 unit cost in the Assembly department provided in the production expense report will readjust depending on the level that production. Thing 5 "How perform Organizations identify Cost habits Patterns?" gives a comprehensive presentation the how cost information can be separated into fixed and variable materials for the objective of providing managers with much more useful information.


Key Takeaway

The four vital steps the assigning costs to units moved out and also units in finishing WIP inventory are formally gift in a production expense report. The production expense report summarizes the production and also cost activity within a handling department for a reporting period. A different report is ready for each handling department. Round off the price per equivalent unit to the nearest thousandth will minimize rounding distinctions when reconciling expenses to it is in accounted because that in action 2 with costs accounted for in step 4.

Computer Application

Using Excel to Prepare a Production price Report

Managers typically use computer software come prepare production cost reports. They execute so for several reasons:

when the style is established, the template have the right to be used from one period to the next. Formulas underlie every calculations, in order to minimizing the potential for mathematics errors and accelerating the process. Changes can it is in made easily without having to redo the entire report. Reports deserve to be easily combined to provide a side-by-side analysis from one duration to the next.

Review number 4.9 "Production price Report for desk Products’ Assembly Department" and then ask yourself: “How have the right to I usage Excel to assist prepare this report?” answer will vary widely relying on your endure with Excel. However, Excel has actually a couple of basic attributes that can make the task of developing a production cost report easier. For example, you have the right to use formulas to sum numbers in a column (note that each of the four steps gift in number 4.9 "Production price Report for desk Products’ Assembly Department" has actually column totals) and to calculate the cost per identical unit. Additionally you can establish a separate line come double-check that

the units come be accounted for complement the units accounted for; and the total expenses to be accounting for complement the total prices accounted for.

For those who desire to add more complex features, the an easy data (e.g., the data in Table 4.2 "Production details for desk Products’ Assembly Department") have the right to be gone into at the top of the spreadsheet and pulled down to the production cost report where necessary.

An example of exactly how to usage Excel to prepare a production expense report follows. An alert that the simple data are at the peak of the spreadsheet, and the rest of the report is moved by formulas. Every month, the data at the optimal are readjusted to reflect the current month’s activity, and the production price report takes treatment of itself.


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Review trouble 4.5

Using the details in keep in mind 4.24 "Review difficulty 4.4", prepare a production cost report for the mixing department of Kelley Paint firm for the month finished March 31. (Hint: you have currently completed the four an essential steps in keep in mind 4.24 "Review problem 4.4". Simply summarize the information in a production cost report as presented in number 4.9 "Production expense Report for workdesk Products’ Assembly Department".)

Solution to Review trouble 4.5

(See services to note 4.24 "Review problem 4.4" for comprehensive calculations.)


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End-of-Chapter Exercises

Questions

Which types of companies use a process costing device to account for product costs? administer at least three examples of commodities that would need the usage of a procedure costing system. Describe the similarities between a procedure costing system and also a task costing system. Define the differences between a procedure costing system and also a project costing system. What space transferred-in costs? define the difference in between physical units and also equivalent units. Define the ide of indistinguishable units assuming the weighted average technique is used. Describe why straight materials, direct labor, and also overhead can be at various stages of completion at the end of a reporting period. describe the four an essential steps displayed in a production price report assuming the weighted average technique is used. What two important quantities are determined in step 4 of the production cost report? describe the straightforward cost flow equation and also explain exactly how it is offered to reconcile systems to be accounted for with units accounting for. Describe the basic cost flow equation and explain exactly how it is offered to reconcile expenses to it is in accounted because that with costs accounted for. just how does a company determine the variety of production price reports come be all set for every reporting period? What is a production expense report, and also how is it supplied by management? define how the expense per equivalent unit can be misleading come managers, specifically when a far-reaching change in production is anticipated.

Brief Exercises

Product Costing at desk Products, Inc. refer to the conversation presented in ~ the beginning of the chapter.

Required:

Why was the owner of workdesk Products, Inc., concerned about the Assembly department product cost of every desk? What go the accountant, john Fuller, promise by the end of the week?

Job Costing Versus process Costing. for each firm detailed in the following, identify whether it would certainly use job costing or procedure costing.

Chewing gum manufacturer Custom vehicle restorer Facial organization manufacturer accounting services provider electric services provider swimming pool builder cereal producer Architectural architecture provider

Process Costing newspaper Entries. assume a firm has two processing departments—Molding and Packaging. Transactions because that the month are shown as follows.

The Molding department requisitioned straight materials totaling $2,000 to be used in production. Direct labor prices totaling $3,500 were incurred in the Molding department, come be payment the following month. Manufacturing overhead costs used to products in the Molding department totaled $2,500. The cost of products transferred indigenous the Molding department to the Packaging department totaled $10,000. Production overhead costs used to products in the Packaging department totaled $1,800.

Required:

Prepare journal entries to record transactions 1 with 5.

Calculating tantamount Units. finish the requirements for every item in the following.

A university has actually 500 student enrolled in classes. Each student attends school on a part-time basis. ~ above average, each student takes three-quarters that a complete load the classes. Calculate the number of full-time equivalent students (i.e., calculation the variety of equivalent units). A full of 10,000 systems of product remain in the Assembly room at the finish of the year. Direct materials are 80 percent complete and direct job is 40 percent complete. Calculate the identical units in the Assembly room for direct materials and also direct labor. A neighborhood hospital has 60 registered nurses working ~ above a part-time basis. On average, each nurse functions two-thirds of a full load. Calculation the variety of full-time indistinguishable nurses (i.e., calculation the number of equivalent units). A complete of 6,000 devices of product stay in the Quality experimentation department in ~ the finish of the year. Direct materials room 75 percent complete and also direct labor is 20 percent complete. Calculate the tantamount units in the Quality experimentation department for direct materials and also direct labor.

Calculating expense per equivalent Unit. The complying with information involves the Finishing department because that the month the June.


Direct Materials Direct Labor Overhead
Total costs to be accounted for $100,000 $200,000 $300,000
Total equivalent units accounting for 10,000 units 8,000 units 8,000 units

Required:

Calculate the expense per equivalent unit for straight materials, direct labor, overhead, and also in total. Display your calculations.

Assigning prices to perfect Units and to systems in finishing WIP Inventory. The adhering to information is for the paint department for the month the January.


Direct Materials Direct Labor Overhead
Cost per tantamount unit $2.10 $1.50 $3.80
Equivalent systems completed and also transferred out 3,000 units 3,000 units 3,000 units
Equivalent units in finishing WIP inventory 1,000 units 1,200 units 1,200 units

Required:

calculation the costs assigned to units completed and also transferred out of the painting department for direct materials, direct labor, overhead, and also in total. Calculation the costs assigned to finishing WIP inventory for the painting department for direct materials, straight labor, overhead, and also in total.

Exercises: collection A

Assigning prices to Products: Weighted average Method. Sydney, Inc., uses the weight average technique for its procedure costing system. The Assembly room at Sydney, Inc., started April with 6,000 units in work-in-process inventory, every one of which to be completed and also transferred out during April. Second 8,000 systems were started during the month, 3,000 the which to be completed and also transferred out throughout April. A full of 5,000 units remained in work-in-process inventory at the end of April and were at varying levels that completion, as displayed in the following.


Direct materials 40 percent complete
Direct labor 30 percent complete
Overhead 50 percent complete

The following expense information is for the Assembly room at Sydney, Inc., because that the month the April.


Direct Materials Direct Labor Overhead Total
Beginning WIP inventory $300,000 $350,000 $250,000 $900,000
Incurred throughout the month $180,000 $200,000 $170,000 $550,000

Required:

recognize the units to be accounting for and also units accounted for; then calculation the identical units for straight materials, straight labor, and also overhead. (Hint: This needs performing step 1 that the four-step process.) calculation the cost per identical unit for direct materials, straight labor, and also overhead. (Hint: This needs performing step 2 and also step 3 the the four-step process.) Assign prices to units moved out and also to devices in finishing WIP inventory. (Hint: This needs performing action 4 the the four-step process.) check that complete costs to be accounted because that (from step 2) equals full costs accounted for (from action 4). Note that minor differences may occur as result of rounding the expense per identical unit in step 3. Explain the meaning of tantamount units.

Process Costing journal Entries. Silva Piping agency produces PVC piping in two processing departments—Fabrication and also Packaging. Transactions for the month the July are displayed as follows.

straight materials totaling $15,000 are requisitioned and placed right into production—$7,000 because that the Fabrication department and also $8,000 for the Packaging department.

Direct labor expenses (wages payable) room incurred by each department together follows:


Fabrication $4,500
Packaging $6,700

Manufacturing overhead expenses are used to every department together follows:


Fabrication $20,000
Packaging $14,000

assets with a expense of $22,000 are transferred from the Fabrication department to the Packaging department. Assets with a price of $35,000 space completed and also transferred from the Packaging department to the finished products warehouse.

Products v a price of $31,000 are marketed to customers.

Required:

Prepare newspaper entries to record each of the previous transactions. In general, exactly how does the procedure costing system used below differ from a task costing system?

Exercises: collection B

Assigning expenses to Products: Weighted mean Method. Varian firm uses the load average technique for its procedure costing system. The Molding department at Varian started the month of January with 80,000 systems in work-in-process inventory, every one of which to be completed and also transferred out during January. Second 90,000 units were started during the month, 30,000 that which to be completed and also transferred out during January. A full of 60,000 units remained in work-in-process inventory at the end of January and were at varying levels of completion, as presented in the following.


Direct materials 80 percent complete
Direct labor 90 percent complete
Overhead 90 percent complete

The following price information is for the Molding department at Varian firm for the month of January.


Direct Materials Direct Labor Overhead Total
Beginning WIP inventory $1,400,000 $1,100,000 $1,700,000 $4,200,000
Incurred throughout the month $1,210,000 $ 980,000 $1,450,000 $3,640,000

Required:

determine the systems to be accounting for and units accounted for; then calculation the equivalent units for direct materials, straight labor, and overhead. (Hint: This requires performing action 1 of the four-step process.) calculate the expense per indistinguishable unit for direct materials, straight labor, and overhead. (Hint: This needs performing action 2 and also step 3 that the four-step process.) Assign costs to units transferred out and to units in finishing WIP inventory. (Hint: This calls for performing step 4 of the four-step process.) confirm that total costs to it is in accounted because that (from action 2) equals full costs accounted for (from step 4). Keep in mind that minor differences may occur due to rounding the price per tantamount unit in step 3. Define the definition of equivalent units.

Process Costing newspaper Entries. Westside chemistry produces repaint thinner in three handling departments—Mixing, Testing, and Packaging. Transactions because that the month the September are presented as follows.

direct materials totaling $80,000 room requisitioned and also placed into production—$60,000 for the mixing department, $11,000 because that the trial and error department, and also $9,000 because that the Packaging department.

Direct labor expenses (wages payable) occurs by each department space as follows:


Mixing $35,000
Testing $25,000
Packaging $18,000

Manufacturing overhead prices are used to every department as follows:


Mixing $17,500
Testing $12,500
Packaging $ 6,000

products with a price of $55,000 are transferred from the mix department come the trial and error department. Assets with a expense of $86,000 room transferred indigenous the experimentation department to the Packaging department. Products with a expense of $100,000 room completed and also transferred indigenous the Packaging department to the finished items warehouse. Products with a expense of $81,000 are sold to customers.

Required:

Prepare journal entries to document each the the previous transactions. In general, how does the procedure costing system used here differ indigenous a job costing system?

Problems

Production price Report: Weighted median Method. Calvin Chemical firm produces a chemical used in the production of silicon wafers. Calvin Chemical supplies the weighted average technique for its procedure costing system. The mix department in ~ Calvin Chemical began the month the June with 5,000 systems (gallons) in work-in-process inventory, every one of which to be completed and also transferred out throughout June. An additional 15,000 systems were started during the month, 11,000 the which to be completed and also transferred out during June. A total of 4,000 units continued to be in work-in-process inventory in ~ the end of June and also were at varying levels the completion, as presented in the following.


Direct materials 60 percent complete
Direct labor 40 percent complete
Overhead 40 percent complete

The cost information is together follows:

 

Costs in beginning work-in-process inventory


Direct materials $8,000
Direct labor $3,000
Overhead $2,800

 

Costs incurred during the month


Direct materials $21,000
Direct labor $ 8,500
Overhead $ 7,200

Required:

Prepare a production expense report for the mixing department in ~ Calvin Chemical company for the month of June. Confirm that complete costs to be accounted because that (from action 2) equals full costs accounted because that (from step 4). Keep in mind that minor differences may occur because of rounding the price per indistinguishable unit in step 3. Follow to the production cost report, what is the complete cost per tantamount unit for the work performed in the mix department? which of the 3 product cost materials is the highest, and also what percent of the total does this product cost represent?

Production expense Report: Weighted typical Method. top quality Confections company manufactures chocolate bars in two handling departments, Mixing and also Packaging, and uses the weighted average method for its procedure costing system. The table that complies with shows details for the mix department because that the month the March.


Unit information (Measured in Pounds) Mixing
Beginning work-in-process inventory 8,000
Started or moved in throughout the month 230,000
Ending work-in-process inventory: 80 percent materials, 70 percent labor, and 60 percent overhead 6,000
Cost Information
Beginning Work-in-Process Inventory
Direct materials $ 3,000
Direct labor $ 1,500
Overhead $ 2,200
Costs Incurred during the Period
Direct materials $103,000
Direct labor $ 55,000
Overhead $ 81,000

Required:

Prepare a production price report for the mix department because that the month that March. Confirm that full costs to it is in accounted because that (from action 2) equals full costs accounted for (from step 4); minor differences may occur as result of rounding the price per equivalent unit in step 3. Follow to the production cost report, what is the complete cost per identical unit for the occupational performed in the mix department? which of the 3 product cost components is the highest, and what percent of the total does this product cost represent?

Production cost Report and Journal Entries: Weighted typical Method. hardwood Products, Inc., manufactures plywood in two handling departments, Milling and Sanding, and also uses the weight average technique for its procedure costing system. The table that follows shows info for the Milling department because that the month the April.


Unit info (Measured in Feet) Milling
Beginning work-in-process inventory 24,000
Started or transferred in throughout the month 110,000
Ending work-in-process inventory: 80 percent materials, 70 percent labor, and 60 percent overhead 32,000
Cost Information
Beginning Work-in-Process Inventory
Direct materials $ 9,000
Direct labor $ 3,000
Overhead $ 3,200
Costs Incurred throughout the Period
Direct materials $45,000
Direct labor $14,000
Overhead $16,000

Required:

Prepare a production price report for the Milling department because that the month of April. Check that full costs to it is in accounted because that (from action 2) equals full costs accounted because that (from step 4); minor differences may occur due to rounding the price per indistinguishable unit in step 3.

For the Milling room at lumber Products, Inc., prepare newspaper entries come record:

The cost of direct materials placed into production during the month (from step 2). Straight labor costs incurred during the month yet not however paid (from step 2). The application of overhead costs during the month (from step 2). The transfer of prices from the Milling room to the Sanding department (from step 4).

One step Further: Skill-Building Cases

Internet Project: Production company Plant Tour. utilizing the Internet, uncover a company that offers a online tour of its manufacturing processes. Paper your findings by completing the complying with requirements.

Required:

summarize each action in the manufacturing process. Which type of costing system (job or process) would you expect the firm to use? Why?

Process Costing in ~ Coca-Cola. refer to keep in mind 4.4 "Business in action 4.1".

Required:

What kind of costing mechanism does Coca-Cola use? Explain. What is the purpose of prepare a production price report? What details results from prepare a production cost report for the mixing and also blending department at Coca-Cola? based on the information provided, what is the minimum number of production expense reports the Coca-Cola prepares every reporting period? Explain.

Process Costing in ~ Wrigley. to express to note 4.9 "Business in activity 4.2".

Required:

What kind of costing device does Wrigley use? Explain. What is the objective of preparing a production price report? What info results from preparing a production expense report because that Wrigley’s Packaging department? based on the info provided, what is the minimum variety of production price reports that Wrigley prepares every reporting period? Explain.

Group Activity: project or process Costing? type groups of two to 4 students. Each group should determine whether a process costing or job costing system is most likely used to calculate product prices for each item detailed in the following and also should be prepared to describe its answers.

Jetliners produced by Boeing Gasoline produced by Shell Oil Company Audit of Intel through Ernst & Young Oreo cookies created by Nabisco Brands, Inc. Frosted Mini-Wheats developed by Kellogg Co. building of suspension bridge in Puget Sound, Washington, by Bechtel Group, Inc. Aluminum foil developed by Alcoa, Inc. Potato chips developed by Frito-Lay, Inc.

Comprehensive Cases

Ethics: Manipulating portion of completion Estimates. computer Tech copy, group produces computer system keyboards, and also its budget year ends on December 31. The load average method is supplied for the company’s procedure costing system. Together the controller of computer Tech, you current December’s production cost report because that the Assembly department to the president of the company. The Assembly room is the last handling department prior to goods are transferred come finished products inventory. All 160,000 units completed and transferred out during the month were sold by December 31.

The plank of directors at computer Tech established a compensation incentive plan that consists of a comprehensive bonus for the president of the firm if annual net income before taxes over $2,000,000. Preliminary numbers show current year net income prior to taxes totaling $1,970,000, i beg your pardon is short of the target through $30,000. The president ideologies you and asks friend to increase the percentage of completion for the 40,000 systems in ending WIP inventory to 90 percent for straight materials and to 95 percent for direct labor and overhead. Even though you space confident in the percentages provided to prepare the production price report, which shows up as follows, the president insists that his readjust is minor and also will have tiny impact on just how investors and also creditors watch the company.


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Required:

Why is the president asking you to rise the percent of completion estimates? Prepare another production cost report for computer Tech firm that consists of the president’s revisions. Show what affect the president’s inquiry will have actually on price of goods sold and on net revenue (ignore earnings taxes in your calculations).

Ethics: raising Production to rise Profits. Pacific Siding, Inc., produces artificial wood siding provided in the building and construction of residential and also commercial buildings. Pacific Siding’s fiscal year end on in march 31, and the weighted average method is used for the company’s procedure costing system.

Financial results for the very first 11 month of the existing fiscal year (through February 28) are well listed below expectations that management, owners, and also creditors. Halfway v the month that March, the chief executive, management officer and also chief jae won officer inquiry the controller to calculation the manufacturing results because that the month of march in the kind of a production expense report (the agency only has actually one production department). This report is presented as follows.


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Armed with the preliminary production expense report for March, and knowing that the company’s production is well listed below capacity, the CEO and also CFO decision to develop as many units as feasible for the last half of March even though sales room not supposed to increase any time soon. The manufacturing manager is said to push his employee to get as far as possible with production, thereby enhancing the percentage of perfect for ending WIP inventory. However, since the production process takes 3 weeks come complete, all the units created in the last fifty percent of March will certainly be in WIP inventory in ~ the end of March.

See more: Land Of The Land Of The Dead The Odyssey, The Land Of The Dead

Required:

define how the CEO and also CFO suppose to rise profit (net income) for the year by boosting production in ~ the finish of March.

Using the complying with assumptions, prepare a revised estimate of manufacturing results in the kind of a production cost report for the month that March.

Assumptions based upon the CEO and also CFO’s request to rise production

systems started and also partially completed during the duration will boost to 225,000 (from the initial estimate of 70,000). This is the projected finishing WIP inventory in ~ March 31. Percent of completion approximates for units in finishing WIP list will rise to 80 percent for straight materials, 85 percent for straight labor, and 90 percent for overhead. Expenses incurred during the period will increase to $95,000 for straight materials, $102,000 for direct labor, and also $150,000 for overhead (most overhead costs are fixed). All units completed and also transferred out during March are sold by march 31. to compare your new production price report through the one prepared by the controller. Just how much carry out you suppose profit to rise as a result of boosting production during the last fifty percent of March? (Ignore income taxes in your calculations.) Is the inquiry made by the CEO and also CFO ethical? define your answer.