Question: The results of the four vital steps are commonly presented in a production cost report. The production expense reportA report the summarizes the production and also cost activity within a department for a reporting period.

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summarizes the production and also cost task within a department for a reporting period. It is just a formal an introduction of the 4 steps performed to assign costs to units moved out and also units in ending work-in-process (WIP) inventory. What walk the production cost report look choose for the Assembly room at workdesk Products, Inc.?

 

Answer: The production price report because that the month of may for the Assembly department appears in number 4.9 "Production expense Report for workdesk Products’ Assembly Department". An alert that each section of this report corresponds with among the 4 steps explained earlier. We provide references to the adhering to illustrations therefore you deserve to review the information supporting calculations.


Figure 4.9 Production price Report for desk Products’ Assembly Department

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a Total costs to be accounted because that (step 2) must equal full costs accounted for (step 4).

b Data room given.

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

d This section comes from Figure 4.5 "Summary of costs to be Accounted for in workdesk Products’ Assembly Department".

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

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


How Do supervisors Use Production price Report Information?

Question: back the production price report provides information necessary to transfer expenses from one account come another, managers likewise use this report because that decision-making purposes. What essential questions have the right to be answered making use of the production cost report?

 

Answer: A production price report helps supervisors answer several important questions:

just how much go it cost to create each unit the product for each department? i beg your pardon production expense is the highest—direct materials, direct labor, or overhead? Where room we having difficulties in the manufacturing process? In any particular departments? room we see any far-reaching changes in unit expenses for direct materials, direct labor, or overhead? If so, why? How countless units flow through each handling department every month? Are improvements in the production process being reflected in the cost per unit from one month to the next?

Beware of addressed Costs

Question: Why can the every unit price data listed in the production cost report be misleading?

 

Answer: as soon as using info from the production price report, managers must be mindful not come assume the all production costs are change costs. The CEO of desk Products, Inc., Ann Watkins, to be told that the Assembly department cost for each desk totaled $62 because that the month of might (from figure 4.9 "Production price Report for workdesk Products’ Assembly Department", action 3). However, if the company produces more or fewer systems than were produced in May, the unit cost will change. This is because the $62 unit cost has both variable and fixed costs (see thing 5 "How carry out Organizations recognize Cost habits Patterns?" for a in-depth discussion that fixed and also variable costs).

Assume direct materials and direct labor are variable costs. In the Assembly department, the variable expenses per unit linked with direct materials and also direct job of $50 (= $30 straight materials + $20 direct labor) will remain the same regardless that the level the production, in ~ the relevant range. However, the continuing to be unit product price of $12 associated with overhead should be analyzed more to determine the amount that is change (e.g., indirect materials) and also the amount the is fixed (e.g., factory rent). Managers must understand that fixed expenses per unit will adjust depending on the level of production. An ext specifically, Ann Watkins must recognize that the $62 unit price in the Assembly department provided in the production expense report will change depending top top the level the production. Chapter 5 "How execute Organizations determine Cost habits Patterns?" gives a comprehensive presentation of how cost information deserve to be separated into fixed and variable components for the objective of offering managers with much more useful information.


Key Takeaway

The four crucial steps that assigning costs to units transferred out and units in ending WIP inventory space formally gift in a production cost report. The production price report summarizes the production and cost task within a processing department because that a report period. A separate report is ready for each handling department. Round off the expense per tantamount unit come the nearest thousandth will certainly minimize rounding differences when reconciling prices to be accounted because that in action 2 with prices accounted for in action 4.

Computer Application

Using Excel to Prepare a Production price Report

Managers commonly use computer system software come prepare production expense reports. They perform so for number of reasons:

when the layout is established, the template deserve to be provided from one duration to the next. Recipe underlie all calculations, in order to minimizing the potential for mathematics errors and speeding up the process. Alters can it is in made conveniently without having to redo the whole report. Reports deserve to be easily merged to carry out a side-by-side evaluation from one duration to the next.

Review figure 4.9 "Production cost Report for workdesk Products’ Assembly Department" and also then asking yourself: “How can I usage Excel to assist prepare this report?” answer will vary widely relying on your experience with Excel. However, Excel has a few basic functions that have the right to make the job of producing a production expense report easier. For example, you can use formulas to amount numbers in a tower (note the each that the four steps gift in number 4.9 "Production expense Report for desk Products’ Assembly Department" has column totals) and also to calculation the cost per indistinguishable unit. Also you can establish a separate line to double-check that

the units come be accounted for match the units accounting for; and also the total prices to be accounted for match the total prices accounted for.

For those who want to add more complicated features, the simple data (e.g., the data in Table 4.2 "Production info for desk Products’ Assembly Department") can be gotten in at the optimal of the spreadsheet and also pulled under to the production expense report wherein necessary.

An instance of just how to usage Excel to prepare a production price report follows. An alert that the straightforward data room at the peak of the spreadsheet, and also the rest of the report is thrust by formulas. Each month, the data at the optimal are changed to reflect the current month’s activity, and also the production cost report takes treatment of itself.


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Review trouble 4.5

Using the details in note 4.24 "Review problem 4.4", prepare a production cost report because that the mix department the Kelley Paint company for the month finished March 31. (Hint: girlfriend have currently completed the four key steps in note 4.24 "Review trouble 4.4". Simply summarize the info in a production expense report as shown in number 4.9 "Production cost Report for desk Products’ Assembly Department".)

Solution to Review problem 4.5

(See services to note 4.24 "Review problem 4.4" for in-depth calculations.)


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End-of-Chapter Exercises

Questions

Which varieties of providers use a procedure costing mechanism to account because that product costs? provide at the very least three instances of commodities that would require the usage of a procedure costing system. Define the similarities in between a process costing system and also a task costing system. Define the differences between a procedure costing system and also a job costing system. What room transferred-in costs? describe the difference in between physical units and also equivalent units. Explain the concept of indistinguishable units suspect the weighted average technique is used. Describe why direct materials, straight labor, and also overhead might be at various stages of perfect at the end of a report period. explain the four vital steps presented in a production expense report presume the weighted average an approach is used. What 2 important amounts are identified in action 4 that the production price report? explain the straightforward cost flow equation and explain how it is used to reconcile units to be accounting for with units accounted for. Explain the straightforward cost circulation equation and also explain how it is used to reconcile costs to it is in accounted because that with prices accounted for. just how does a firm determine the variety of production expense reports to be all set for each reporting period? What is a production expense report, and how is it used by management? define how the cost per indistinguishable unit might be misleading to managers, specifically when a far-ranging change in production is anticipated.

Brief Exercises

Product Costing at workdesk Products, Inc. describe the dialogue presented in ~ the start of the chapter.

Required:

Why was the owner of desk Products, Inc., concerned around the Assembly department product expense of each desk? What did the accountant, man Fuller, promise by the end of the week?

Job Costing Versus procedure Costing. because that each firm provided in the following, determine whether it would use project costing or process costing.

Chewing gum manufacturer Custom car restorer Facial tissue manufacturer accountancy services provider electric services provider pool builder grain producer Architectural style provider

Process Costing journal Entries. assume a company has two processing departments—Molding and also Packaging. Transactions for the month are shown as follows.

The Molding department requisitioned direct materials totaling $2,000 to be provided in production. Straight labor prices totaling $3,500 were occurs in the Molding department, to be payment the following month. Production overhead costs applied to products in the Molding department totaled $2,500. The cost of goods transferred indigenous the Molding department to the Packaging department totaled $10,000. Production overhead costs applied to assets in the Packaging room totaled $1,800.

Required:

Prepare journal entries to record transactions 1 with 5.

Calculating identical Units. complete the demands for every item in the following.

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

Calculating expense per tantamount Unit. The complying with information involves the Finishing department for the month the June.


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

Required:

Calculate the price per identical unit for direct materials, straight labor, overhead, and also in total. Show your calculations.

Assigning costs to perfect Units and to devices in finishing WIP Inventory. The complying with information is because that the paint department for the month the January.


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

Required:

calculate the prices assigned to devices completed and transferred out of the painting department for straight materials, direct labor, overhead, and in total. Calculate the prices assigned to finishing WIP inventory for the paint department for direct materials, straight labor, overhead, and also in total.

Exercises: collection A

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


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

The following cost information is because that 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 during the month $180,000 $200,000 $170,000 $550,000

Required:

recognize the devices to be accounted for and units accounted for; then calculate the tantamount units for direct materials, straight labor, and also overhead. (Hint: This requires performing action 1 that the four-step process.) calculate the expense per tantamount unit for straight materials, direct labor, and overhead. (Hint: This requires performing action 2 and step 3 that the four-step process.) Assign expenses to units moved out and to devices in ending WIP inventory. (Hint: This needs performing action 4 of the four-step process.) check that full costs to be accounted for (from step 2) equals full costs accounted for (from step 4). Keep in mind that minor distinctions may occur as result of rounding the expense per equivalent unit in step 3. Explain the meaning of tantamount units.

Process Costing newspaper Entries. Silva Piping company produces PVC piping in two handling departments—Fabrication and Packaging. Transactions for the month that July are presented as follows.

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

Direct labor expenses (wages payable) space incurred by every department as follows:


Fabrication $4,500
Packaging $6,700

Manufacturing overhead costs are used to each department together follows:


Fabrication $20,000
Packaging $14,000

commodities with a cost of $22,000 room transferred from the Fabrication department to the Packaging department. Commodities with a cost of $35,000 are completed and also transferred native the Packaging department to the finished products warehouse.

Products through a expense of $31,000 are sold to customers.

Required:

Prepare journal entries to record each the the ahead transactions. In general, exactly how does the process costing mechanism used right here differ indigenous a job costing system?

Exercises: set B

Assigning costs to Products: Weighted average Method. Varian firm uses the load average an approach for its process costing system. The Molding room at Varian started the month the January with 80,000 systems in work-in-process inventory, all of which were completed and also transferred out throughout January. Secondary 90,000 devices were started during the month, 30,000 the which were completed and transferred out throughout January. A complete of 60,000 units continued to be in work-in-process inventory at the end of January and were at differing levels the completion, as displayed 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:

identify the devices to be accounting for and units accounting for; then calculate the identical units for direct materials, direct labor, and also overhead. (Hint: This calls for performing action 1 that the four-step process.) calculate the price per equivalent unit for direct materials, straight labor, and also overhead. (Hint: This requires performing step 2 and step 3 of the four-step process.) Assign expenses to units transferred out and to devices in finishing WIP inventory. (Hint: This needs performing step 4 of the four-step process.) confirm that total costs to be accounted for (from step 2) equals full costs accounted because that (from action 4). Note that minor differences may occur because of rounding the price per identical unit in action 3. Define the an interpretation of equivalent units.

Process Costing journal Entries. Westside chemicals produces repaint thinner in three processing departments—Mixing, Testing, and Packaging. Transactions for the month of September are shown as follows.

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

Direct labor costs (wages payable) occurs by every department room as follows:


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

Manufacturing overhead expenses are applied to each department together follows:


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

commodities with a price of $55,000 are transferred from the mixing department come the trial and error department. Assets with a price of $86,000 are transferred from the experimentation department to the Packaging department. Commodities with a cost of $100,000 are completed and transferred indigenous the Packaging room to the finished products warehouse. Products with a expense of $81,000 are offered to customers.

Required:

Prepare journal entries to record each that the vault transactions. In general, just how does the process costing system used right here differ from a project costing system?

Problems

Production cost Report: Weighted typical Method. Calvin Chemical firm produces a chemical used in the manufacturing of silicon wafers. Calvin Chemical provides the weighted average method for its process costing system. The mix department at Calvin Chemical began the month the June through 5,000 units (gallons) in work-in-process inventory, all of which to be completed and transferred out throughout June. An additional 15,000 units were started throughout the month, 11,000 the which were completed and transferred out throughout June. A full of 4,000 units remained in work-in-process inventory at the end of June and also were at differing levels that completion, as displayed in the following.


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

The cost information is as follows:

 

Costs in start work-in-process inventory


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

 

Costs incurred throughout the month


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

Required:

Prepare a production expense report because that the mix department at Calvin Chemical firm for the month that June. Confirm that total costs to it is in accounted for (from step 2) equals complete costs accounted because that (from step 4). Note that minor distinctions may occur due to rounding the price per tantamount unit in step 3. According to the production price report, what is the complete cost per identical unit because that the occupational performed in the mix department? which of the 3 product cost materials is the highest, and also what percent of the full does this product expense represent?

Production expense Report: Weighted median Method. high quality Confections firm manufactures chocolate bars in two handling departments, Mixing and also Packaging, and also uses the weight average technique for its procedure costing system. The table that adheres to shows info for the mixing department for the month that 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 also 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 throughout the Period
Direct materials $103,000
Direct labor $ 55,000
Overhead $ 81,000

Required:

Prepare a production price report because that the mix department because that the month of March. Confirm that full costs to it is in accounted because that (from step 2) equals total costs accounted for (from action 4); minor distinctions may occur because of rounding the expense per equivalent unit in action 3. Follow to the production expense report, what is the total cost per indistinguishable unit because that the work performed in the mix department? i beg your pardon of the 3 product cost components is the highest, and also what percent that the complete does this product expense represent?

Production expense Report and also Journal Entries: Weighted mean Method. wood Products, Inc., manufactures plywood in two processing departments, Milling and Sanding, and uses the load average method for its procedure costing system. The table that adheres to shows info for the Milling department for the month of April.


Unit information (Measured in Feet) Milling
Beginning work-in-process inventory 24,000
Started or transferred in during the month 110,000
Ending work-in-process inventory: 80 percent materials, 70 percent labor, and also 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 because that the Milling department for the month the April. Confirm that complete costs to it is in accounted because that (from step 2) equals complete costs accounted because that (from action 4); minor distinctions may occur because of rounding the cost per tantamount unit in step 3.

For the Milling department at timber Products, Inc., prepare journal entries to record:

The expense of direct materials inserted into production during the month (from action 2). Direct labor costs incurred during the month but not yet paid (from step 2). The applications of overhead expenses during the month (from action 2). The transfer of costs from the Milling department to the Sanding room (from action 4).

One action Further: Skill-Building Cases

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

Required:

summary each action in the manufacturing process. Which type of costing mechanism (job or process) would you intend the agency to use? Why?

Process Costing at Coca-Cola. express to keep in mind 4.4 "Business in activity 4.1".

Required:

What kind of costing system does Coca-Cola use? Explain. What is the function of preparing a production expense report? What information results from prepare a production expense report because that the mixing and also blending room at Coca-Cola? based upon the information provided, what is the minimum number of production price reports the Coca-Cola prepares every reporting period? Explain.

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

Required:

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

Group Activity: project or procedure Costing? kind groups of 2 to four students. Each team should recognize whether a process costing or project costing mechanism is most likely used to calculation product expenses for every item noted in the following and also should be all set to define its answers.

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

Comprehensive Cases

Ethics: Manipulating percentage of completion Estimates. computer system Tech copy, group produces computer keyboards, and its fiscal year ends on December 31. The weight average method is supplied for the company’s process costing system. As the controller of computer Tech, you existing December’s production price report for the Assembly room to the president of the company. The Assembly department is the last processing department prior to goods room transferred come finished items inventory. Every 160,000 systems completed and also transferred out during the month were offered by December 31.

The board of director at computer system Tech established a compensation incentive arrangement that has a comprehensive bonus for the chairman of the firm if yearly net income prior to taxes above $2,000,000. Preliminary figures show present year net income before taxes totaling $1,970,000, i m sorry is brief of the target by $30,000. The president philosophies you and also asks girlfriend to increase the percent of completion because that the 40,000 systems in ending WIP inventory come 90 percent for direct materials and to 95 percent for straight labor and also overhead. Also though you are confident in the percentages used to prepare the production cost report, which appears as follows, the chairman insists that his adjust is minor and will have little impact on exactly how investors and creditors view the company.


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Required:

Why is the president asking you to rise the percentage of perfect estimates? Prepare another production expense report for computer system Tech firm that has the president’s revisions. Show what affect the president’s inquiry will have on price of items sold and on net income (ignore earnings taxes in your calculations).

Ethics: boosting Production to an increase Profits. Pacific Siding, Inc., produces fabricated wood siding offered in the building and construction of residential and commercial buildings. Pacific Siding’s budget year end on march 31, and the weighted average technique is used for the company’s process costing system.

Financial results for the first 11 months of the existing fiscal year (through February 28) space well below expectations the management, owners, and creditors. Halfway with the month of March, the chief executive officer and also chief financial officer inquiry the controller to estimate the manufacturing results for the month of march in the form of a production cost report (the company only has one production department). This report is shown as follows.


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Armed through the preliminary production cost report because that March, and also knowing the the company’s manufacturing is well listed below capacity, the CEO and CFO decide to create as many units as feasible for the last fifty percent of March also though sales space not intended to increase any time soon. The production manager is said to push his employees to obtain as far as feasible with production, thereby raising the percentage of completion for ending WIP inventory. However, because the production process takes 3 weeks to complete, every the units produced in the last fifty percent of March will be in WIP inventory at the end of March.

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Required:

describe how the CEO and CFO expect to increase profit (net income) for the year by boosting production at the finish of March.

Using the adhering to assumptions, prepare a revised estimate of manufacturing results in the form of a production cost report for the month of March.

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

units started and partially completed during the duration will rise to 225,000 (from the initial calculation of 70,000). This is the projected ending WIP inventory at March 31. Portion of completion approximates for units in finishing WIP inventory will rise to 80 percent for direct materials, 85 percent for straight labor, and also 90 percent for overhead. Expenses incurred throughout the period will boost to $95,000 for straight materials, $102,000 for straight labor, and also $150,000 because that overhead (most overhead costs are fixed). All units completed and transferred out during March are offered by march 31. to compare your brand-new production price report v the one prepared by the controller. How much perform you suppose profit to rise as a an outcome of raising production during the last half of March? (Ignore income taxes in your calculations.) Is the request made by the CEO and CFO ethical? explain your answer.