Question: The outcomes of the four key steps are frequently presented in a production expense report. The manufacturing cost reportA report that summarizes the production and also cost activity within a department for a reporting period.

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summarizes the production and expense activity within a department for a reporting duration. It is sindicate a formal summary of the 4 steps perdeveloped to assign costs to units moved out and units in ending work-in-procedure (WIP) inventory. What does the manufacturing cost report look prefer for the Assembly department at Workdesk Products, Inc.?

 

Answer: The production price report for the month of May for the Assembly department shows up in Figure 4.9 "Production Cost Report for Workdesk Products’ Assembly Department". Notice that each area of this report coincides with one of the 4 steps explained earlier. We administer recommendations to the following illustrations so you deserve to review the information supporting calculations.


Figure 4.9 Production Cost Report for Desk Products’ Assembly Department

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a Total prices to be accounted for (step 2) must equal total costs accounted for (step 4).

b Data are provided.

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

d This section originates from Figure 4.5 "Summary of Costs to Be Accounted for in Desk Products’ Assembly Department".

e This section comes from Figure 4.6 "Calculation of the Cost per Equivalent Unit for Desk Products’ Assembly Department".

f This section originates from Figure 4.7 "Assigning Costs to Products in Workdesk Products’ Assembly Department".


How Do Managers Use Production Cost Report Information?

Question: Although the production expense report gives indevelopment needed to move prices from one account to another, supervisors likewise usage this report for decision-making functions. What crucial inquiries deserve to be answered utilizing the production price report?

 

Answer: A production expense report helps supervisors answer numerous vital questions:

How a lot does it cost to create each unit of product for each department? Which manufacturing expense is the highest—direct products, straight labor, or overhead? Wbelow are we having difficulties in the production process? In any kind of particular departments? Are we seeing any substantial changes in unit costs for straight products, straight labor, or overhead? If so, why? How many kind of systems flow via each processing department each month? Are renovations in the manufacturing procedure being reflected in the price per unit from one month to the next?

Beware of Fixed Costs

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

 

Answer: When making use of information from the production cost report, managers should be cautious not to assume that all production costs are variable expenses. The CEO of Desk Products, Inc., Ann Watkins, was told that the Assembly department price for each desk totaled $62 for the month of May (from Figure 4.9 "Production Cost Report for Desk Products’ Assembly Department", action 3). However, if the firm produces even more or fewer devices than were produced in May, the unit price will certainly adjust. This is because the $62 unit expense includes both variable and also solved costs (check out Chapter 5 "How Do Organizations Identify Cost Behavior Patterns?" for a thorough discussion of fixed and also variable costs).

Assume direct products and also straight labor are variable prices. In the Assembly department, the variable costs per unit associated through direct materials and also straight labor of $50 (= $30 straight materials + $20 direct labor) will remajor the very same regardmuch less of the level of production, within the pertinent variety. However, the remaining unit product expense of $12 associated through overhead must be analyzed better to recognize the amount that is variable (e.g., indirect materials) and also the amount that is solved (e.g., factory rent). Managers have to understand also that addressed prices per unit will certainly adjust relying on the level of manufacturing. More particularly, Ann Watkins must understand that the $62 unit price in the Assembly department gave in the manufacturing price report will certainly adjust depending on the level of manufacturing. Chapter 5 "How Do Organizations Identify Cost Behavior Patterns?" provides a thorough presentation of exactly how expense information have the right to be separated right into resolved and variable components for the objective of offering managers through more beneficial indevelopment.


Key Takeaway

The four key procedures of assigning costs to devices moved out and systems in finishing WIP inventory are formally presented in a production cost report. The production price report summarizes the production and cost task within a handling department for a reporting duration. A sepaprice report is all set for each handling department. Rounding the price per equivalent unit to the nearest thousandth will certainly minimize rounding differences once reconciling costs to be accounted for in action 2 through expenses accounted for in action 4.

Computer Application

Using Excel to Prepare a Production Cost Report

Managers frequently usage computer system software program to prepare manufacturing expense reports. They do so for numerous reasons:

Once the format is established, the design template deserve to be offered from one duration to the following. Formulas underlie all calculations, thereby minimizing the potential for math errors and speeding up the procedure. Changes have the right to be made easily without having actually to recarry out the whole report. Reports can be easily linked to carry out a side-by-side evaluation from one period to the next.

Rewatch Figure 4.9 "Production Cost Report for Workdesk Products’ Assembly Department" and then ask yourself: “How have the right to I use Excel to aid prepare this report?” Answers will vary widely depending upon your suffer with Excel. However, Excel has a few standard attributes that have the right to make the task of creating a production price report much easier. For example, you deserve to usage formulas to amount numbers in a column (note that each of the 4 steps presented in Figure 4.9 "Production Cost Report for Workdesk Products’ Assembly Department" has actually column totals) and to calculate the cost per equivalent unit. Also you deserve to establish a separate line to double-inspect that

the devices to be accounted for complement the systems accounted for; and the total prices to be accounted for match the total costs accounted for.

For those who want to include more facility functions, the basic information (e.g., the data in Table 4.2 "Production Information for Desk Products’ Assembly Department") can be gotten in at the peak of the spreadsheet and pulled down to the production expense report wbelow important.

An instance of just how to usage Excel to prepare a production price report complies with. Notice that the standard data are at the optimal of the spreadsheet, and also the rest of the report is propelled by formulas. Each month, the data at the optimal are adjusted to reflect the existing month’s activity, and the production cost report takes treatment of itself.


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Review Problem 4.5

Using the indevelopment in Note 4.24 "Resee Problem 4.4", prepare a manufacturing price report for the Mixing department of Kelley Paint Company type of for the month ended March 31. (Hint: You have actually currently completed the 4 vital steps in Note 4.24 "Resee Problem 4.4". Ssuggest summarize the information in a manufacturing expense report as presented in Figure 4.9 "Production Cost Report for Desk Products’ Assembly Department".)

Equipment to Recheck out Problem 4.5

(See remedies to Note 4.24 "Resee Problem 4.4" for detailed calculations.)


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End-of-Chapter Exercises

Questions

Which types of carriers usage a process costing mechanism to account for product costs? Provide at leastern 3 examples of products that would certainly need the use of a procedure costing system. Describe the similarities in between a process costing mechanism and also a project costing mechanism. Describe the distinctions in between a procedure costing device and a task costing system. What are transferred-in costs? Exsimple the distinction between physical units and also tantamount units. Exsimple the principle of tantamount devices assuming the weighted average approach is supplied. Explain why direct materials, straight labor, and overhead can be at different stages of completion at the end of a reporting duration. Describe the four vital measures presented in a manufacturing expense report assuming the weighted average strategy is offered. What 2 necessary quantities are established in step 4 of the production cost report? Describe the basic expense flow equation and also explain exactly how it is offered to reconcile devices to be accounted for with systems accounted for. Describe the fundamental cost circulation equation and also explain just how it is supplied to reconcile expenses to be accounted for via expenses accounted for. How does a company recognize the variety of production expense reports to be prepared for each reporting period? What is a manufacturing price report, and how is it supplied by management? Exordinary exactly how the cost per equivalent unit could be misbring about supervisors, specifically when a significant change in production is anticipated.

Brief Exercises

Product Costing at Workdesk Products, Inc. Refer to the dialogue presented at the start of the chapter.

Required:

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

Job Costing Versus Process Costing. For each firm detailed in the following, determine whether it would usage job costing or process costing.

Chewing gum manufacturer Custom automobile restorer Facial tproblem manufacturer Accounting solutions provider Electrical solutions provider Pool builder Ceactual producer Architectural design provider

Process Costing Journal Entries. Assume a firm has actually 2 processing departments—Molding and also Packaging. Transactions for the month are displayed as follows.

The Molding department requisitioned straight materials totaling $2,000 to be offered in production. Direct labor expenses totaling $3,500 were incurred in the Molding department, to be phelp the next month. Manufacturing overhead prices applied to assets in the Molding department totaled $2,500. The price of products transferred from the Molding department to the Packaging department totaled $10,000. Manufacturing overhead expenses applied to products in the Packaging department totaled $1,800.

Required:

Prepare journal entries to record transactions 1 through 5.

Calculating Equivalent Units. Complete the demands for each item in the adhering to.

A university has 500 students enrolled in classes. Each student attends institution on a part-time basis. On average, each student takes three-quarters of a full fill of classes. Calculate the number of permanent indistinguishable students (i.e., calculate the number of indistinguishable units). A total of 10,000 units of product reprimary in the Assembly department at the finish of the year. Direct products are 80 percent finish and also straight labor is 40 percent finish. Calculate the equivalent systems in the Assembly department for direct products and also straight labor. A regional hospital has actually 60 nurses functioning on a part-time basis. On average, each nurse works two-thirds of a full load. Calculate the variety of permanent indistinguishable nurses (i.e., calculate the number of identical units). A complete of 6,000 units of product remain in the Quality Testing department at the end of the year. Direct materials are 75 percent complete and also direct labor is 20 percent complete. Calculate the tantamount units in the Quality Testing department for direct materials and straight labor.

Calculating Cost per Equivalent Unit. The following information concerns the Finishing department for the month of June.


Direct Materials Direct Labor Overhead
Total prices to be accounted for $100,000 $200,000 $300,000
Total indistinguishable devices accounted for 10,000 units 8,000 units 8,000 units

Required:

Calculate the price per indistinguishable unit for straight materials, direct labor, overhead, and also in full. Sexactly how your calculations.

Assigning Costs to Completed Units and to Units in Ending WIP Inventory. The complying with indevelopment is for the Painting department for the month of January.


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

Required:

Calculate the costs assigned to units completed and also transferred out of the Painting department for direct materials, direct labor, overhead, and in full. Calculate the prices assigned to finishing WIP inventory for the Painting department for direct products, straight labor, overhead, and in total.

Exercises: Set A

Assigning Costs to Products: Weighted Mean Method. Sydney, Inc., offers the weighted average method for its procedure costing system. The Assembly department at Sydney, Inc., began April through 6,000 systems in work-in-process inventory, every one of which were completed and transferred out in the time of April. An additional 8,000 units were started in the time of the month, 3,000 of which were completed and also transferred out during April. A full of 5,000 units remained in work-in-process inventory at the finish of April and also were at differing levels of completion, as shown in the complying with.


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

The following expense indevelopment is for the Assembly department at Sydney, Inc., for the month of 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:

Determine the systems to be accounted for and also devices accounted for; then calculate the equivalent systems for direct materials, straight labor, and overhead. (Hint: This needs percreating action 1 of the four-step procedure.) Calculate the cost per identical unit for straight materials, direct labor, and also overhead. (Hint: This needs perdeveloping step 2 and also step 3 of the four-step process.) Asauthorize prices to units transferred out and also to units in ending WIP inventory. (Hint: This calls for perdeveloping action 4 of the four-step process.) Confirm that complete expenses to be accounted for (from step 2) amounts to complete prices accounted for (from step 4). Note that minor distinctions might occur as a result of rounding the cost per indistinguishable unit in step 3. Exordinary the interpretation of indistinguishable systems.

Process Costing Journal Entries. Silva Piping Company produces PVC piping in 2 processing departments—Fabrication and also Packaging. Transactions for the month of July are presented as complies with.

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

Direct labor prices (weras payable) are incurred by each department as follows:


Fabrication $4,500
Packaging $6,700

Manufacturing overhead costs are used to each department as follows:


Fabrication $20,000
Packaging $14,000

Products via a expense of $22,000 are moved from the Fabrication department to the Packaging department. Products with a price of $35,000 are completed and also moved from the Packaging department to the finimelted items warehome.

Products via a cost of $31,000 are marketed to customers.

Required:

Prepare journal entries to document each of the previous transactions. In general, exactly how does the process costing system provided right here differ from a job costing system?

Exercises: Set B

Assigning Costs to Products: Weighted Mean Method. Varian Company kind of offers the weighted average strategy for its procedure costing system. The Molding department at Varian started the month of January through 80,000 systems in work-in-procedure inventory, every one of which were completed and moved out during January. An added 90,000 systems were began in the time of the month, 30,000 of which were completed and also moved out in the time of January. A total of 60,000 devices continued to be in work-in-procedure inventory at the finish of January and also were at differing levels of completion, as displayed in the complying with.


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

The complying with cost information is for the Molding department at Varian Company type of 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 in the time of the month $1,210,000 $ 980,000 $1,450,000 $3,640,000

Required:

Determine the systems to be accounted for and devices accounted for; then calculate the equivalent devices for direct materials, straight labor, and also overhead. (Hint: This requires performing step 1 of the four-step process.) Calculate the expense per equivalent unit for straight products, direct labor, and overhead. (Hint: This requires performing step 2 and action 3 of the four-step process.) Asauthorize prices to devices moved out and to devices in ending WIP inventory. (Hint: This needs percreating step 4 of the four-action procedure.) Confirm that complete prices to be accounted for (from action 2) equals total expenses accounted for (from step 4). Note that minor differences may occur because of rounding the price per tantamount unit in step 3. Exsimple the meaning of indistinguishable units.

Process Costing Journal Entries. Westside Chemicals produces paint thinner in three processing departments—Mixing, Testing, and Packaging. Transactions for the month of September are displayed as adheres to.

Direct products totaling $80,000 are requisitioned and put into production—$60,000 for the Mixing department, $11,000 for the Testing department, and also $9,000 for the Packaging department.

Direct labor expenses (wperiods payable) incurred by each department are as follows:


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

Manufacturing overhead costs are used to each department as follows:


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

Products through a cost of $55,000 are transferred from the Mixing department to the Testing department. Products with a expense of $86,000 are transferred from the Testing department to the Packaging department. Products with a price of $100,000 are completed and also transferred from the Packaging department to the finished goods warehouse. Products with a price of $81,000 are sold to customers.

Required:

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

Problems

Production Cost Report: Weighted Typical Method. Calvin Chemical Company kind of produces a chemical provided in the production of silicon wafers. Calvin Chemical offers the weighted average method for its process costing device. The Mixing department at Calvin Chemical began the month of June via 5,000 units (gallons) in work-in-process inventory, all of which were completed and transferred out during June. An extra 15,000 systems were began in the time of the month, 11,000 of which were completed and moved out during June. A complete of 4,000 systems continued to be in work-in-procedure inventory at the end of June and also were at differing levels of completion, as displayed in the adhering to.


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

The expense indevelopment is as follows:

 

Costs in beginning work-in-procedure 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 cost report for the Mixing department at Calvin Chemical Company kind of for the month of June. Confirm that full costs to be accounted for (from action 2) amounts to full costs accounted for (from action 4). Note that minor differences may happen because of rounding the cost per equivalent unit in action 3. According to the manufacturing price report, what is the full price per tantamount unit for the job-related percreated in the Mixing department? Which of the 3 product price components is the highest possible, and what percent of the total does this product cost represent?

Production Cost Report: Weighted Median Method. Quality Confections Company type of manufactures cocoa bars in two processing departments, Mixing and Packaging, and also uses the weighted average method for its procedure costing device. The table that follows shows information for the Mixing department for the month of March.


Unit Information (Measured in Pounds) Mixing
Beginning work-in-procedure inventory 8,000
Started or transferred in during the month 230,000
Ending work-in-procedure inventory: 80 percent products, 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 in the time of the Period
Direct materials $103,000
Direct labor $ 55,000
Overhead $ 81,000

Required:

Prepare a manufacturing price report for the Mixing department for the month of March. Confirm that complete expenses to be accounted for (from step 2) equates to full costs accounted for (from step 4); minor differences may happen because of rounding the price per identical unit in action 3. According to the manufacturing cost report, what is the complete expense per indistinguishable unit for the occupational performed in the Mixing department? Which of the three product expense components is the highest, and also what percent of the total does this product price represent?

Production Cost Report and also Journal Entries: Weighted Average Method. Wood Products, Inc., manufactures plylumber in two handling departments, Milling and also Sanding, and supplies the weighted average approach for its process costing device. The table that complies with shows indevelopment for the Milling department for the month of April.


Unit Indevelopment (Measured in Feet) Milling
Beginning work-in-process inventory 24,000
Started or transferred in throughout the month 110,000
Ending work-in-procedure inventory: 80 percent products, 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 manufacturing cost report for the Milling department for the month of April. Confirm that complete costs to be accounted for (from step 2) equals total expenses accounted for (from action 4); minor distinctions may take place due to rounding the expense per tantamount unit in action 3.

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

The price of straight products put into manufacturing during the month (from step 2). Direct labor expenses incurred throughout the month yet not yet paid (from action 2). The application of overhead costs during the month (from step 2). The carry of costs from the Milling department to the Sanding department (from step 4).

One Step Further: Skill-Building Cases

Net Project: Production Company kind of Plant Tour. Using the Internet, discover a firm that provides a digital tour of its production processes. Document your findings by completing the adhering to needs.

Required:

Summarize each step in the manufacturing process. Which form of costing mechanism (job or process) would you intend the firm to use? Why?

Process Costing at Coca-Cola. Refer to Note 4.4 "Business in Action 4.1".

Required:

What type of costing device does Coca-Cola use? Explain. What is the function of preparing a production expense report? What indevelopment results from preparing a production expense report for the mixing and blfinishing department at Coca-Cola? Based on the indevelopment offered, what is the minimum variety of production cost reports that Coca-Cola prepares each reporting period? Exsimple.

Process Costing at Wrigley. Refer to Note 4.9 "Firm in Action 4.2".

Required:

What type of costing mechanism does Wrigley use? Explain. What is the function of preparing a production cost report? What information outcomes from preparing a manufacturing price report for Wrigley’s Packaging department? Based on the information gave, what is the minimum number of production expense reports that Wrigley prepares each reporting period? Exordinary.

Group Activity: Job or Process Costing? Form groups of 2 to 4 students. Each group need to determine whether a procedure costing or job costing system is most most likely provided to calculate product costs for each item listed in the complying with and should be prepared to explain its answers.

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

Comprehensive Cases

Ethics: Manipulating Percentage of Completion Price quotes. Computer Tech Corporation produces computer key-boards, and also its fiscal year ends on December 31. The weighted average approach is used for the company’s procedure costing mechanism. As the controller of Computer Tech, you present December’s production price report for the Assembly department to the president of the firm. The Assembly department is the last handling department prior to products are transferred to finimelted products inventory. All 160,000 devices completed and moved out in the time of the month were offered by December 31.

The board of directors at Computer Tech establimelted a compensation catalyst arrangement that includes a comprehensive bonus for the president of the firm if annual net income before taxes exceeds $2,000,000. Preliminary numbers display present year net income before taxes totaling $1,970,000, which is short of the target by $30,000. The president approaches you and asks you to increase the portion of completion for the 40,000 devices in finishing WIP inventory to 90 percent for straight products and also to 95 percent for direct labor and also overhead. Even though you are confident in the percenteras offered to prepare the manufacturing price report, which appears as follows, the president insists that his readjust is minor and also will certainly have actually little affect on how investors and creditors check out the company.


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Required:

Why is the president asking you to boost the percent of completion estimates? Prepare another manufacturing expense report for Computer Tech Company that includes the president’s revisions. Indicate what affect the president’s repursuit will certainly have actually on cost of items offered and also on net revenue (neglect revenue taxes in your calculations).

Ethics: Increasing Production to Boost Profits. Pacific Siding, Inc., produces man-made hardwood siding provided in the building and construction of residential and commercial buildings. Pacific Siding’s fiscal year ends on March 31, and also the weighted average strategy is used for the company’s procedure costing device.

Financial results for the initially 11 months of the present fiscal year (with February 28) are well listed below expectations of monitoring, owners, and also creditors. Halfway via the month of March, the chief executive officer and also chief financial officer asked the controller to estimate the production outcomes for the month of March in the develop of a production cost report (the firm only has one production department). This report is shown as complies with.


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Armed with the preliminary manufacturing cost report for March, and also discovering that the company’s manufacturing is well below capacity, the CEO and CFO decide to produce as many devices as possible for the last fifty percent of March even though sales are not expected to rise any kind of time shortly. The production manager is told to press his employees to get as far as possible through production, thereby increasing the percentage of completion for ending WIP inventory. However, since the production process takes 3 weeks to complete, all the devices created in the last half of March will be in WIP inventory at the end of March.

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Required:

Exordinary how the CEO and CFO mean to increase profit (net income) for the year by boosting production at the end of March.

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

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

Units began and also partly completed during the period will certainly boost to 225,000 (from the initial estimate of 70,000). This is the projected finishing WIP inventory at March 31. Percentage of completion estimates for systems in ending WIP inventory will rise to 80 percent for straight materials, 85 percent for direct labor, and 90 percent for overhead. Costs incurred in the time of the period will boost to $95,000 for straight products, $102,000 for straight labor, and also $150,000 for overhead (many overhead prices are fixed). All units completed and also moved out during March are offered by March 31. Compare your brand-new production price report via the one ready by the controller. How much perform you expect profit to rise as an outcome of raising manufacturing throughout the last fifty percent of March? (Ignore revenue taxes in your calculations.) Is the request made by the CEO and also CFO ethical? Exordinary your answer.