Question: The outcomes of the four key steps are commonly presented in a production expense report. The production expense reportA report the summarizes the production and also cost task within a department for a reporting period.
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summarizes the production and cost activity within a department because that a report period. That is merely a formal review of the four steps performed come assign expenses to units moved out and also units in ending work-in-process (WIP) inventory. What go the production expense report look prefer for the Assembly room at desk Products, Inc.?
Answer: The production expense report for the month of may for the Assembly department shows up in figure 4.9 "Production price Report for workdesk Products’ Assembly Department". Notice that each section of this report coincides with one of the four steps defined earlier. We carry out references to the following illustrations for this reason you can review the information supporting calculations.
Figure 4.9 Production cost Report for workdesk Products’ Assembly Department
a Total expenses to it is in accounted for (step 2) should equal total costs accounted for (step 4).
b Data space given.
c This section comes 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 prices to it is in Accounted because that in desk Products’ Assembly Department".
e This section comes from Figure 4.6 "Calculation that the expense per tantamount Unit for desk Products’ Assembly Department".
f This section comes from Figure 4.7 "Assigning prices to products in desk Products’ Assembly Department".
How Do supervisors Use Production cost Report Information?
Question: back the production expense report gives information necessary to transfer costs from one account to another, managers additionally use this report for decision-making purposes. What essential questions have the right to be answered making use of the production cost report?
Answer: A production expense report helps managers answer several vital questions:just how much walk it expense to produce each unit the product because that each department? i beg your pardon production price is the highest—direct materials, straight labor, or overhead? Where are we having challenges in the production process? In any details departments? room we see any significant changes in unit expenses for straight materials, straight labor, or overhead? If so, why? How plenty of units flow through each processing department each month? Are enhancements in the production process being reflected in the cost per unit indigenous one month to the next?
Beware of resolved Costs
Question: Why could the per unit cost data noted in the production expense report be misleading?
Answer: when using information from the production cost report, managers must be mindful not to assume the all production expenses are variable costs. The CEO of desk Products, Inc., Ann Watkins, was told that the Assembly department expense for each desk totaled $62 for the month of might (from number 4.9 "Production price Report for workdesk Products’ Assembly Department", action 3). However, if the agency produces an ext or fewer systems than were created in May, the unit price will change. This is due to the fact that the $62 unit cost consists of both variable and fixed costs (see chapter 5 "How execute Organizations recognize Cost actions Patterns?" for a in-depth discussion the fixed and variable costs).
Assume direct materials and also direct labor room variable costs. In the Assembly department, the variable expenses per unit associated with direct materials and also direct labor of $50 (= $30 straight materials + $20 straight labor) will remain the same regardless the the level the production, in ~ the pertinent range. However, the remaining unit product price of $12 associated with overhead should be analyzed additional to determine the amount that is variable (e.g., indirect materials) and the amount the is fixed (e.g., factory rent). Managers must recognize that fixed costs per unit will adjust depending top top the level the production. Much more specifically, Ann Watkins must understand that the $62 unit price in the Assembly department provided in the production expense report will readjust depending ~ above the level of production. Chapter 5 "How perform Organizations recognize Cost actions Patterns?" provides a thorough presentation that how price information have the right to be separated right into fixed and variable contents for the objective of offering managers with an ext useful information.
Key TakeawayThe four crucial steps of assigning expenses to units moved out and also units in ending WIP inventory space formally presented in a production expense report. The production cost report summarizes the production and cost activity within a handling department because that a report period. A different report is ready for each handling department. Rounding the cost per identical unit come the nearest thousandth will certainly minimize rounding distinctions when reconciling costs to be accounted for in action 2 with prices accounted because that in action 4.
Using Excel come Prepare a Production cost Report
Managers generally use computer software come prepare production price reports. They perform so for several reasons:as soon as the style is established, the template have the right to be supplied from one duration to the next. Formulas underlie every calculations, in order to minimizing the potential for mathematics errors and accelerating the process. Alters can be made quickly without having to redo the whole report. Reports deserve to be easily merged to provide a side-by-side evaluation from one duration to the next.
Review number 4.9 "Production price Report for desk Products’ Assembly Department" and also then asking yourself: “How deserve to I usage Excel to help prepare this report?” answers will vary widely relying on your endure with Excel. However, Excel has a few basic features that deserve to make the task of creating a production price report easier. Because that example, you have the right to use formulas to sum numbers in a obelisk (note the each the the four steps gift in figure 4.9 "Production cost Report for desk Products’ Assembly Department" has column totals) and also to calculate the price per identical unit. Also you can create a different line to double-check thatthe units come be accounted for match the units accounted for; and also the total costs to be accounting for enhance the total prices accounted for.
For those who desire to include more complex features, the simple data (e.g., the data in Table 4.2 "Production details for desk Products’ Assembly Department") deserve to be gone into at the height of the spreadsheet and also pulled under to the production price report wherein necessary.
An instance of how to usage Excel come prepare a production expense report follows. Notice that the basic data space at the top of the spreadsheet, and the remainder of the report is moved by formulas. Each month, the data in ~ the optimal are readjusted to reflect the present month’s activity, and also the production price report takes treatment of itself.
Review problem 4.5
Using the details in keep in mind 4.24 "Review difficulty 4.4", prepare a production cost report for the mixing department the Kelley Paint company for the month finished March 31. (Hint: friend have already completed the four an essential steps in keep in mind 4.24 "Review trouble 4.4". Merely summarize the information in a production cost report as shown in figure 4.9 "Production expense Report for desk Products’ Assembly Department".)
Solution come Review trouble 4.5
(See options to note 4.24 "Review problem 4.4" for thorough calculations.)
QuestionsWhich varieties of service providers use a procedure costing system to account because that product costs? carry out at the very least three instances of products that would call for the usage of a procedure costing system. Describe the similarities in between a procedure costing system and also a project costing system. Describe the differences between a procedure costing system and also a job costing system. What room transferred-in costs? define the difference in between physical units and also equivalent units. Explain the principle of indistinguishable units presume the weighted average technique is used. Define why direct materials, straight labor, and overhead can be at different stages of completion at the end of a reporting period. explain the four crucial steps shown in a production cost report suspect the weighted average method is used. What 2 important amounts are identified in action 4 the the production expense report? define the straightforward cost flow equation and also explain exactly how it is used to reconcile devices to be accounted for with units accounted for. Describe the basic cost flow equation and explain how it is supplied to reconcile expenses to it is in accounted for with expenses accounted for. just how does a agency determine the variety of production cost reports to be prepared for each reporting period? What is a production expense report, and also how is it supplied by management? define how the price per tantamount unit could be misleading come managers, specifically when a far-reaching change in manufacturing is anticipated.
Product Costing at desk Products, Inc. refer to the conversation presented in ~ the beginning of the chapter.
Required:Why to be the owner of workdesk Products, Inc., concerned about the Assembly department product price of each desk? What go the accountant, man Fuller, promise through the finish of the week?
Job Costing Versus procedure Costing. for each firm noted in the following, determine whether it would use project costing or process costing.Chewing gum manufacturer Custom auto restorer Facial organization manufacturer audit services provider electrical services provider swimming pool builder cereal producer Architectural style provider
Process Costing newspaper Entries. i think a firm has two processing departments—Molding and Packaging. Transactions for the month are presented as follows.The Molding department requisitioned straight materials totaling $2,000 come be supplied in production. Direct labor costs totaling $3,500 were occurs in the Molding department, come be payment the following month. Production overhead costs applied to assets in the Molding room totaled $2,500. The cost of goods transferred from the Molding department to the Packaging room totaled $10,000. Manufacturing overhead costs used to assets in the Packaging room totaled $1,800.
Prepare newspaper entries to document transactions 1 with 5.
Calculating tantamount Units. complete the requirements for every item in the following.A university has 500 student enrolled in classes. Each college student attends institution on a part-time basis. ~ above average, each college student takes three-quarters the a full load that classes. Calculation the number of full-time equivalent students (i.e., calculation the number of equivalent units). A total of 10,000 devices of product continue to be in the Assembly room at the end of the year. Direct materials space 80 percent complete and also direct labor is 40 percent complete. Calculation the identical units in the Assembly room for direct materials and also direct labor. A neighborhood hospital has 60 registered nurses working top top a part-time basis. On average, every nurse functions two-thirds that a complete load. Calculation the number of full-time tantamount nurses (i.e., calculation the number of equivalent units). A complete of 6,000 devices of product continue to be in the Quality trial and error department at the end of the year. Straight materials space 75 percent complete and direct job is 20 percent complete. Calculate the indistinguishable units in the Quality testing department for straight materials and also direct labor.
Calculating cost per identical Unit. The adhering to information concerns the Finishing department because that the month the June.
|Direct Materials||Direct Labor||Overhead|
|Total prices to be accounted for||$100,000||$200,000||$300,000|
|Total indistinguishable units accounting for||10,000 units||8,000 units||8,000 units|
Calculate the price per indistinguishable unit for direct materials, direct labor, overhead, and in total. Display your calculations.
Assigning prices to perfect Units and also to systems in ending WIP Inventory. The complying with information is because that the painting department because that the month the January.
|Direct Materials||Direct Labor||Overhead|
|Cost per equivalent unit||$2.10||$1.50||$3.80|
|Equivalent units completed and transferred 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:calculation the costs assigned to devices completed and transferred the end of the paint department for straight materials, direct labor, overhead, and in total. Calculate the prices assigned to ending WIP inventory because that the paint department for straight materials, straight labor, overhead, and also in total.
Exercises: set A
Assigning prices to Products: Weighted median Method. Sydney, Inc., offers the weight average an approach for its process costing system. The Assembly department at Sydney, Inc., started April with 6,000 units in work-in-process inventory, every one of which were completed and also transferred out during April. Secondary 8,000 devices were started during the month, 3,000 of which were completed and transferred out during April. A full of 5,000 units stayed in work-in-process inventory in ~ the finish of April and were at varying levels of completion, as presented 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 department at Sydney, Inc., because that 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:recognize the units to be accounting for and units accounted for; then calculate the identical units for direct materials, straight labor, and overhead. (Hint: This calls for performing action 1 that the four-step process.) calculation the price per identical unit for direct materials, direct labor, and overhead. (Hint: This needs performing action 2 and step 3 the the four-step process.) Assign costs to units moved out and also to devices in finishing WIP inventory. (Hint: This calls for performing step 4 that the four-step process.) check that total costs to it is in accounted because that (from step 2) equals full costs accounted for (from step 4). Keep in mind that minor distinctions may occur due to rounding the expense per equivalent unit in step 3. Explain the an interpretation of indistinguishable units.
Process Costing newspaper Entries. Silva Piping agency produces PVC piping in two processing departments—Fabrication and also Packaging. Transactions because that the month of July are shown as follows.straight materials totaling $15,000 space requisitioned and placed right into production—$7,000 for the Fabrication department and $8,000 for the Packaging department.
Direct labor prices (wages payable) space incurred by each department as follows:
Manufacturing overhead expenses are applied to each department together follows:
products with a expense of $22,000 room transferred native the Fabrication department to the Packaging department. Assets with a cost of $35,000 space completed and transferred native the Packaging department to the finished products warehouse.
Products with a expense of $31,000 are marketed to customers.
Required:Prepare newspaper entries to document each that the vault transactions. In general, exactly how does the process costing mechanism used below differ indigenous a job costing system?
Exercises: collection B
Assigning prices to Products: Weighted average Method. Varian company uses the load average method for its procedure costing system. The Molding room at Varian began the month of January v 80,000 units in work-in-process inventory, all of which were completed and also transferred out during January. An additional 90,000 systems were started throughout the month, 30,000 of which to be completed and transferred out throughout January. A total of 60,000 units continued to be in work-in-process inventory in ~ the end of January and also 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 room at Varian firm for the month the January.
|Direct Materials||Direct Labor||Overhead||Total|
|Beginning WIP inventory||$1,400,000||$1,100,000||$1,700,000||$4,200,000|
|Incurred during the month||$1,210,000||$ 980,000||$1,450,000||$3,640,000|
Required:identify the units to be accounting for and units accounting for; then calculation the equivalent units for direct materials, direct labor, and overhead. (Hint: This needs performing action 1 the the four-step process.) calculation the price per indistinguishable unit for direct materials, straight labor, and also overhead. (Hint: This calls for performing step 2 and step 3 the the four-step process.) Assign prices to units transferred out and to devices in ending WIP inventory. (Hint: This requires performing step 4 the the four-step process.) confirm that full costs to be accounted because that (from action 2) equals total costs accounted for (from action 4). Keep in mind that minor distinctions may occur due to rounding the cost per equivalent unit in action 3. Define the an interpretation of equivalent units.
Process Costing newspaper Entries. Westside chemicals produces paint thinner in three handling departments—Mixing, Testing, and Packaging. Transactions for the month the September are presented as follows.straight materials totaling $80,000 space requisitioned and also placed right 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 are as follows:
Manufacturing overhead prices are used to each department together follows:
commodities with a expense of $55,000 are transferred native the mixing department come the trial and error department. Products with a expense of $86,000 are transferred native the trial and error department come the Packaging department. Products with a price of $100,000 space completed and transferred from the Packaging department to the finished goods warehouse. Assets with a price of $81,000 are sold to customers.
Required:Prepare newspaper entries to document each the the previous transactions. In general, how does the procedure costing system used here differ indigenous a project costing system?
Production cost Report: Weighted median Method. Calvin Chemical agency produces a chemical used in the manufacturing of silicon wafers. Calvin Chemical offers the weighted average technique for its procedure costing system. The mixing department at Calvin Chemical started the month the June through 5,000 devices (gallons) in work-in-process inventory, every one of which to be completed and also transferred out throughout June. An additional 15,000 devices were started during the month, 11,000 the which were completed and transferred out throughout June. A complete of 4,000 units continued to be in work-in-process inventory in ~ the finish of June and also were at varying levels that completion, as displayed in the following.
|Direct materials||60 percent complete|
|Direct labor||40 percent complete|
|Overhead||40 percent complete|
The expense information is as follows:
Costs in start work-in-process inventory
Costs incurred throughout the month
|Direct labor||$ 8,500|
Required:Prepare a production expense report because that the mix department at Calvin Chemical agency for the month the June. Check that total costs to it is in accounted for (from step 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. According to the production price report, what is the total cost per indistinguishable unit for the occupational performed in the mixing department? i beg your pardon of the 3 product cost materials is the highest, and also what percent of the full does this product price represent?
Production expense Report: Weighted mean Method. quality Confections agency manufactures chocolate bars in two processing departments, Mixing and Packaging, and also uses the weight average an approach for its process costing system. The table that adheres to shows information for the mix department for the month that March.
|Unit details (Measured in Pounds)||Mixing|
|Beginning work-in-process inventory||8,000|
|Started or transferred in throughout the month||230,000|
|Ending work-in-process inventory: 80 percent materials, 70 percent labor, and 60 percent overhead||6,000|
|Beginning Work-in-Process Inventory|
|Direct materials||$ 3,000|
|Direct labor||$ 1,500|
|Costs Incurred during the Period|
|Direct labor||$ 55,000|
Required:Prepare a production expense report because that the mix department for the month the March. Confirm that complete costs to it is in accounted for (from step 2) equals full costs accounted because that (from step 4); minor distinctions may occur as result of rounding the cost per indistinguishable unit in action 3. Follow to the production cost report, what is the total cost per identical unit because that the occupational performed in the mix department? i m sorry of the three product cost components is the highest, and also what percent the the complete does this product cost represent?
Production cost Report and Journal Entries: Weighted median Method. wood Products, Inc., manufactures plywood in two processing departments, Milling and also Sanding, and uses the weighted average method for its procedure costing system. The table that adheres to shows info for the Milling department because that the month of April.
|Unit info (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|
|Beginning Work-in-Process Inventory|
|Direct materials||$ 9,000|
|Direct labor||$ 3,000|
|Costs Incurred during the Period|
Required:Prepare a production cost report for the Milling department because that the month that April. Check that full costs to it is in accounted because that (from step 2) equals total costs accounted for (from action 4); minor differences may occur because of rounding the price per equivalent unit in step 3.
For the Milling room at lumber Products, Inc., prepare journal entries come record:The expense of direct materials put into production during the month (from action 2). Straight labor prices incurred throughout the month yet not yet paid (from action 2). The application of overhead expenses during the month (from action 2). The deliver of costs from the Milling department to the Sanding room (from step 4).
One action Further: Skill-Building Cases
Internet Project: Production firm Plant Tour. making use of the Internet, discover a company that offers a online tour of its production processes. Document your result by perfect the complying with requirements.
Required:summarize each action in the manufacturing process. Which form of costing device (job or process) would you suppose the firm to use? Why?
Process Costing at Coca-Cola. refer to note 4.4 "Business in action 4.1".
Required:What kind of costing system does Coca-Cola use? Explain. What is the purpose of prepare a production cost report? What information results from prepare a production price report because that the mixing and blending room at Coca-Cola? based on the information provided, what is the minimum number of production price reports the Coca-Cola prepares each reporting period? Explain.
Process Costing at Wrigley. to express to note 4.9 "Business in activity 4.2".
Required:What form of costing mechanism does Wrigley use? Explain. What is the function of preparing a production cost report? What information results from preparing a production expense report for Wrigley’s Packaging department? based on the information provided, what is the minimum number of production price reports the Wrigley prepares each reporting period? Explain.
Group Activity: project or procedure Costing? form groups of two to four students. Each team should determine whether a procedure costing or task costing device is most most likely used to calculate product prices for every item noted in the following and should be all set to define its answers.Jetliners produced by Boeing Gasoline produced by Shell Oil Company Audit that Intel by Ernst & Young Oreo cookies developed by Nabisco Brands, Inc. Frosted Mini-Wheats developed by Kellogg Co. 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.
Ethics: Manipulating percent of completion Estimates. computer system Tech copy, group produces computer system keyboards, and its fiscal year ends on December 31. The weight average method is used for the company’s procedure costing system. As the controller of computer Tech, you present December’s production cost report for the Assembly department to the president of the company. The Assembly department is the last processing department prior to goods are transferred come finished products inventory. Every 160,000 units completed and also transferred out during the month were sold by December 31.
The board of directors at computer Tech developed a compensation incentive plan that has a considerable bonus for the president of the agency if annual net income prior to taxes over $2,000,000. Preliminary numbers show present year network income prior to taxes totaling $1,970,000, i beg your pardon is quick of the target by $30,000. The president viewpoints you and asks friend to boost the percentage of completion because that the 40,000 units in finishing WIP inventory come 90 percent for straight materials and also to 95 percent for straight labor and also overhead. Even though you room confident in the percentages used to prepare the production expense report, which shows up as follows, the president insists that his change is minor and will have small impact on exactly how investors and creditors check out the company.
Required:Why is the president asking you to rise the portion of completion estimates? Prepare another production price report for computer Tech agency that consists of the president’s revisions. Indicate what impact the president’s request will have actually on price of items sold and also on net income (ignore revenue taxes in her calculations).
Ethics: raising Production to boost Profits. Pacific Siding, Inc., produces synthetic wood siding offered in the building and construction of residential and commercial buildings. Pacific Siding’s fiscal year ends on march 31, and the weight average an approach is provided for the company’s process costing system.
Financial results for the very first 11 month of the current fiscal year (through February 28) room well listed below expectations that management, owners, and also creditors. Halfway through the month of March, the chief executive, management officer and also chief jae won officer asked the controller to estimate the manufacturing results because that the month of march in the form of a production cost report (the company only has one production department). This report is displayed as follows.
Armed v the preliminary production price report because that March, and also knowing that the company’s manufacturing is well below capacity, the CEO and also CFO decide to produce as plenty of units as feasible for the last fifty percent of March also though sales room not expected to increase any type of time soon. The manufacturing manager is called to push his employee to get as far as feasible with production, thereby increasing the percentage of completion for finishing WIP inventory. However, since the production procedure takes three weeks come complete, every the units produced in the last fifty percent of March will certainly be in WIP inventory in ~ the finish of March.
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Required:describe how the CEO and also CFO expect to rise profit (net income) because that the year by an enhancing production in ~ the finish of March.
Using the complying with assumptions, prepare a revised calculation of manufacturing results in the form of a production expense report because that the month the March.
Assumptions based on the CEO and also CFO’s inquiry to boost productiondevices started and partially completed throughout the duration will rise to 225,000 (from the initial calculation of 70,000). This is the projected finishing WIP inventory at March 31. Portion of completion estimates for systems in ending WIP list will boost to 80 percent for straight materials, 85 percent for direct labor, and also 90 percent for overhead. Prices incurred throughout the period will boost to $95,000 for direct materials, $102,000 for straight labor, and $150,000 for overhead (most overhead prices are fixed). All units completed and transferred out during March are marketed by march 31. to compare your brand-new production cost report with the one ready by the controller. Exactly how much do you mean profit to increase as a result of boosting production during the last fifty percent of March? (Ignore revenue taxes in your calculations.) Is the request made by the CEO and also CFO ethical? define your answer.