Description
Production reports are used in process costing environments to track and
accumulate information on total units, equivalent units, and costs by
departments rather than by individual products. How could the production
reports in process costing also be used for controlling or improving
operations?
Embed course material concepts, principles, and theories (requires supporting
citations) along with at least one scholarly, peer-reviewed reference in
supporting your answer. Keep in mind that these scholarly references can be
found in the Saudi Electronic Library by conducting an advanced search
specific to scholarly references.
Chapter 3
Process Cost
Systems
Accounting for Process Manufacturers
(slide 1 of 2)
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Accounting for Process Manufacturers
(slide 2 of 2)
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Examples of Process Cost and Job Order
Companies
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Comparing Job Order and
Process Cost Systems
? Process and job order cost systems are different in
several ways.
o
A process cost system accumulates (records) product
costs in work in process accounts for each department.
In contrast, a job order cost system accumulates
(records) product costs by jobs, using job cost sheets.
o
In a job order cost system, the work in process at the
end of the period is the sum of the job cost sheets for
partially completed jobs. In a process cost system, the
work in process at the end of the period is the sum of
the costs remaining in each department account at the
end of the period.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cost of Production Report
(slide 1 of 3)
? In a process cost system, the cost of units transferred
out of each processing department must be
determined along with the cost of any partially
completed units remaining in the department. The
report that summarizes these costs is a cost of
production report.
o
The cost of production report summarizes the
production and cost data for a department as follows:
? The units the department is accountable for and the
disposition of those units.
? The product costs incurred by the department and the
allocation of those costs between completed (transferred
out) and partially completed units.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Preparing a Cost of Production Report
Determine units
to be assigned
costs
Compute
equivalent units
of production
Determine cost
per equivalent
unit
Allocate costs to
units transferred
out and to
partially
completed units
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cost of Production Report
(slide 2 of 3)
? Preparing a cost of production report requires making
a cost flow assumption.
? Like merchandise inventory, costs can be assumed
to flow through the manufacturing process using the
first-in, first-out (F I F O), last-in, first-out (L I F O), or
average cost methods.
o
Because the first-in, first-out (F I F O) method is often
the same as the physical flow of units, the FIFO
method is used in this chapter.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cost of Production Report
(slide 3 of 3)
? By preparing a cost of production report, the cost of
the gallons transferred to the Packaging Department
in July and the ending work in process inventory in
the Mixing Department are determined.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 1: Determine the Units to Be Assigned
Costs
?
The first step is to determine the units to be
assigned costs.
o
A unit can be any measure of completed production,
such as tons, gallons, pounds, barrels, or cases.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 2: Compute Equivalent Units of
Production (slide 1 of 5)
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 2: Compute Equivalent Units of
Production (slide 3 of 5)
?
Equivalent units for materials and conversion
costs are usually determined separately.
o
This is because materials and conversion costs
normally enter production at different times and rates.
? In contrast, direct labor and factory overhead normally enter
production at the same time and rate.
? For this reason, direct labor and factory overhead are
combined as conversion costs in computing equivalent units.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 2: Compute Equivalent Units of
Production (slide 4 of 5)
? To compute equivalent units for materials, it is
necessary to know how materials are added during
the manufacturing process.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 2: Compute Equivalent Units of
Production (slide 5 of 5)
?
To compute equivalent units for conversion costs, it is
necessary to know how direct labor and factory overhead
enter the manufacturing process.
o
Direct labor, utilities, and equipment depreciation are often incurred
uniformly during processing.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 3: Determine the Cost per Equivalent Unit
(slide 1 of 4)
?
The cost per equivalent unit for direct materials
and conversion costs is computed as follows:
Direct Materials Cost per Equivalent Unit =
Conversion Cost per Equivalent Unit =
Total Direct Materials Cost for the Period
Total Equivalent Units of Direct Materials
Total Conversion Costs for the Period
Total Equivalent Units of Conversion Costs
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Step 4: Allocate Costs to Units Transferred
Out and Partially Completed Units
? Product costs must be allocated to the units
transferred out and the partially completed units on
hand at the end of the period.
o
The product costs are allocated using the costs per
equivalent unit for materials and conversion costs that
were computed in Step 3.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Preparing the Cost of Production Report
? A cost of production report is prepared for each
processing department at periodic intervals.
? The report summarizes the following production
quantity and cost data:
o
The units for which the department is accountable
and the disposition of those units.
o
The production costs incurred by the department and
the allocation of those costs between completed
(transferred out) and partially completed units.
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Yield
Quantity of Material Output
Yield =
Quantity of Material Input
? 2020 Cengage Learning?. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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