Cost of Production Report
What inventory costing method is assumed for the Cost of Production Reports we have covered in class?
FIFO (First in - First Out)
What are Period Costs?
Costs that are not tied directly to production and are expensed in the period in which they are incurred, such as selling and administrative expenses.
What is Process Costing?
Process costing records product costs for each manufacturing department or process.
What is the purpose of a cost of production report?
To summarize production and cost data for each processing department.
What are the four steps to complete a cost of production report in a process cost system?
1. Determine units to be assigned costs,
2. Compute equivalent units of production,
3. Determine cost per equivalent unit,
4. Allocate costs to units transferred out and partially completed units.
Define a Cost of Production Report
A report prepared periodically by a processing department, summarizing (1) the units for which the department is accountable and the disposition of those units and (2) the costs incurred by the department and the allocation of those costs between completed and incomplete production.
What type of industry is process costing best suited for?
Industries that mass produce identical units of a product, such as chemicals, food, or paper.
What is the journal entry to record the cost of completed production in Department A that is transferred to Department B?
Debit Work in Process—Department B
Credit Work in Process—Department A
If the total Direct Material Equivalent Units are 12,300 units and the total Direct Materials cost is $75,820, what is the Cost per Equivalent Unit for direct materials? (Round to 2 decimal places if necessary)
$6.16 per DM equivalent unit
What is a Process Manufacturer?
A manufacturer that produces products that are indistinguishable from each other using a continuous production process.
In process costing, where are costs charged?
Costs are charged to processing departments, not to individual jobs.
How can cost of production reports help in decision making?
They provide data that managers can use to control and improve operations.
If the Beginning Inventory in Process is 20% completed with 500 whole units, what are the equivalent units for Direct Materials and Conversion?
Direct Materials = 0 Units
Conversion = 400 Units
What is a Cost per Equivalent Unit?
The rate used to allocate costs between completed and partially completed production.
How are process cost systems and job order cost systems similar
Both track materials, labor, and overhead costs; use the same manufacturing accounts (e.g., Work in Process, Finished Goods, Cost of Goods Sold); and follow the flow of costs through the production process.
When goods are sold in a process cost system, how is the cost recorded?
The cost is transferred from Finished Goods Inventory to Cost of Goods Sold.
If the Ending Inventory in Process is 45% completed with 450 whole units, what are the equivalent units for Direct Materials and Conversion? (Round to 1 decimal place if necessary)
Direct Materials = 450 Units
Conversion = 202.5 Units
What are the Equivalent Units of Production?
The portion of whole units that are complete with respect to materials or conversion (direct labor and factory overhead) costs.
How are equivalent units used in a process cost system?
They are used to measure the work done during a period by converting partially completed units into a number of fully completed units for cost allocation.
If the amount of factory overhead cost incurred exceeds the amount applied, what type of balance will the factory overhead account have, and what does that indicate?
A debit balance, indicating underapplied overhead.