Question: The outcomes of the four key actions are commonly presented in a manufacturing price report. The manufacturing expense reportA report that summarizes the manufacturing and price task within a department for a reporting duration.

You are watching: Which of the following is not a necessary step in preparing a production cost report?

summarizes the manufacturing and also cost task within a department for a reporting period. It is simply a formal summary of the 4 steps percreated to assign prices to systems moved out and devices in finishing work-in-procedure (WIP) inventory. What does the manufacturing cost report look favor for the Assembly department at Desk Products, Inc.?

 

Answer: The manufacturing expense report for the month of May for the Assembly department appears in Figure 4.9 "Production Cost Report for Desk Products’ Assembly Department". Notice that each area of this report synchronizes through one of the four measures described previously. We carry out references to the following illustrations so you deserve to evaluation the information supporting calculations.


Figure 4.9 Production Cost Report for Workdesk Products’ Assembly Department

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a Total expenses to be accounted for (action 2) have to equal total prices accounted for (action 4).

b File are given.

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

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

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

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


How Do Managers Use Production Cost Report Information?

Question: Although the manufacturing price report provides information required to carry expenses from one account to an additional, managers also use this report for decision-making purposes. What important concerns have the right to be answered utilizing the production price report?

 

Answer: A production price report helps supervisors answer numerous essential questions:

How much does it cost to create each unit of product for each department? Which manufacturing price is the highest—direct materials, straight labor, or overhead? Wright here are we having challenges in the production process? In any particular departments? Are we seeing any type of significant changes in unit costs for direct products, straight labor, or overhead? If so, why? How many devices circulation through each processing department each month? Are enhancements in the production process being reflected in the price per unit from one month to the next?

Beware of Fixed Costs

Question: Why could the per unit price data detailed in the manufacturing expense report be misleading?

 

Answer: When using indevelopment from the production price report, managers have to be careful not to assume that all production prices are variable prices. The CEO of Workdesk Products, Inc., Ann Watkins, was told that the Assembly department expense for each desk totaled $62 for the month of May (from Figure 4.9 "Production Cost Report for Workdesk Products’ Assembly Department", action 3). However, if the firm produces more or fewer systems than were created in May, the unit price will certainly change. This is bereason the $62 unit price has both variable and solved prices (watch Chapter 5 "How Do Organizations Identify Cost Behavior Patterns?" for a detailed discussion of solved and variable costs).

Assume straight materials and also straight labor are variable expenses. In the Assembly department, the variable expenses per unit linked with straight materials and straight labor of $50 (= $30 straight materials + $20 straight labor) will certainly remajor the same regardmuch less of the level of production, within the relevant variety. However before, the staying unit product cost of $12 linked via overhead must be analyzed further to determine the amount that is variable (e.g., instraight materials) and also the amount that is resolved (e.g., factory rent). Managers have to understand that fixed prices per unit will certainly adjust depending on the level of production. More especially, Ann Watkins should understand that the $62 unit cost in the Assembly department offered in the manufacturing expense report will change depending on the level of manufacturing. Chapter 5 "How Do Organizations Identify Cost Behavior Patterns?" offers a comprehensive presentation of just how cost information can be separated into resolved and variable components for the function of offering supervisors with even more helpful information.


Key Takeaway

The four key procedures of assigning expenses to systems transferred out and also devices in finishing WIP inventory are formally presented in a manufacturing cost report. The production cost report summarizes the manufacturing and also expense task within a processing department for a reporting period. A separate report is prepared for each processing department. Rounding the expense per tantamount unit to the nearemainder thousandth will certainly minimize rounding differences once reconciling costs to be accounted for in action 2 via prices accounted for in step 4.

Computer Application

Using Excel to Prepare a Production Cost Report

Managers generally usage computer system software application to prepare production price reports. They do so for a number of reasons:

Once the format is establimelted, the template deserve to be supplied from one period to the following. Formulas underlie all calculations, thereby minimizing the potential for math errors and also accelerating the procedure. Changes deserve to be made quickly without having actually to recarry out the whole report. Reports deserve to be quickly merged to provide a side-by-side analysis from one period to the following.

Review Figure 4.9 "Production Cost Report for Desk Products’ Assembly Department" and also then ask yourself: “How have the right to I use Excel to help prepare this report?” Answers will certainly differ extensively depending upon your endure via Excel. However, Excel has actually a few standard features that have the right to make the job of producing a manufacturing price report less complicated. For example, you can use formulregarding sum 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 tantamount unit. Also you can establish a sepaprice line to double-inspect that

the units to be accounted for match the systems accounted for; and also the total expenses to be accounted for enhance the complete costs accounted for.

For those who want to add even more complicated attributes, the standard data (e.g., the information in Table 4.2 "Production Information for Workdesk Products’ Assembly Department") can be gotten in at the peak of the spreadsheet and pulled dvery own to the manufacturing expense report wbelow necessary.

An example of exactly how to use Excel to prepare a production expense report complies with. Notice that the fundamental data are at the height of the spreadsheet, and also the rest of the report is pushed by formulas. Each month, the information at the top are changed to reflect the present month’s activity, and also the production cost report takes care of itself.


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Recheck out Problem 4.5

Using the indevelopment in Note 4.24 "Recheck out Problem 4.4", prepare a production price report for the Mixing department of Kelley Paint Company for the month finished March 31. (Hint: You have actually currently completed the four crucial measures in Keep in mind 4.24 "Review Problem 4.4". Ssuggest summarize the information in a manufacturing price report as presented in Figure 4.9 "Production Cost Report for Workdesk Products’ Assembly Department".)

Equipment to Rewatch Problem 4.5

(See options to Note 4.24 "Recheck out Problem 4.4" for comprehensive calculations.)


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End-of-Chapter Exercises

Questions

Which forms of service providers use a process costing system to account for product costs? Provide at least 3 examples of commodities that would call for the use of a process costing mechanism. Describe the similarities between a process costing mechanism and a project costing mechanism. Describe the distinctions in between a process costing device and also a task costing system. What are transferred-in costs? Explain the distinction between physical units and also identical units. Exsimple the idea of identical systems assuming the weighted average method is offered. Explain why straight materials, straight labor, and overhead could be at various stages of completion at the finish of a reporting duration. Describe the 4 vital measures shown in a production expense report assuming the weighted average approach is used. What 2 necessary amounts are figured out in step 4 of the manufacturing price report? Describe the standard expense flow equation and also define exactly how it is offered to reconcile units to be accounted for via units accounted for. Describe the standard price circulation equation and define exactly how it is provided to reconcile prices to be accounted for with prices accounted for. How does a company recognize the number of manufacturing cost reports to be ready for each reporting period? What is a production price report, and exactly how is it offered by management? Explain just how the expense per identical unit might be misleading to supervisors, particularly as soon as a significant readjust in production is anticipated.

Short Exercises

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

Required:

Why was the owner of Desk Products, Inc., came to around the Assembly department product cost of each desk? What did the accountant, John Fuller, promise by the end of the week?

Job Costing Versus Process Costing. For each firm provided in the adhering to, recognize whether it would certainly use project costing or procedure costing.

Chewing gum manufacturer Custom vehicle restorer Facial tworry manufacturer Accounting services provider Electrical solutions provider Pool builder Cereal producer Architectural style provider

Process Costing Journal Entries. Assume a firm has two handling departments—Molding and Packaging. Transactions for the month are shown as adheres to.

The Molding department requisitioned straight products totaling $2,000 to be provided in production. Direct labor costs totaling $3,500 were incurred in the Molding department, to be paid the next month. Manufacturing overhead costs used 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 costs used to commodities in the Packaging department totaled $1,800.

Required:

Prepare journal entries to record transactions 1 via 5.

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

A university has 500 students enrolled in classes. Each student atoften tends college on a part-time basis. On average, each student takes three-quarters of a full pack of classes. Calculate the variety of full time indistinguishable students (i.e., calculate the variety of tantamount units). A total of 10,000 units of product remajor in the Assembly department at the finish of the year. Direct materials are 80 percent complete and also direct labor is 40 percent complete. Calculate the equivalent devices in the Assembly department for direct materials and also straight labor. A neighborhood hospital has 60 nurses working on a part-time basis. On average, each nurse functions two-thirds of a full 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 remain in the Quality Testing department at the end of the year. Direct products are 75 percent finish and also direct labor is 20 percent finish. Calculate the indistinguishable devices in the Quality Testing department for direct materials and also direct labor.

Calculating Cost per Equivalent Unit. The adhering to information involves 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 identical devices accounted for 10,000 units 8,000 units 8,000 units

Required:

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

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


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

Required:

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

Exercises: Set A

Assigning Costs to Products: Weighted Median Method. Sydney, Inc., provides the weighted average approach for its process costing device. The Assembly department at Sydney, Inc., began April via 6,000 devices in work-in-process inventory, all of which were completed and moved out in the time of April. An added 8,000 systems were began in the time of the month, 3,000 of which were completed and moved out in the time of April. A full of 5,000 units remained in work-in-procedure inventory at the finish of April and also were at differing levels of completion, as presented in the following.


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

The adhering to expense information 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 devices to be accounted for and also units accounted for; then calculate the indistinguishable systems for direct materials, direct labor, and also overhead. (Hint: This calls for perdeveloping step 1 of the four-action process.) Calculate the price per indistinguishable unit for straight materials, direct labor, and also overhead. (Hint: This requires percreating step 2 and also step 3 of the four-action procedure.) Asauthorize costs to units transferred out and to devices in finishing WIP inventory. (Hint: This requires performing action 4 of the four-step process.) Confirm that total expenses to be accounted for (from step 2) amounts to full costs accounted for (from action 4). Note that minor distinctions might happen because of rounding the price per equivalent unit in step 3. Explain the interpretation of tantamount units.

Process Costing Journal Entries. Silva Piping Company type of produces PVC piping in two processing departments—Fabrication and Packaging. Transactions for the month of July are displayed as follows.

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

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


Fabrication $4,500
Packaging $6,700

Manufacturing overhead expenses are applied to each department as follows:


Fabrication $20,000
Packaging $14,000

Products with a price of $22,000 are transferred from the Fabrication department to the Packaging department. Products with a expense of $35,000 are completed and also transferred from the Packaging department to the finimelted goods wareresidence.

Products with a price of $31,000 are sold to customers.

Required:

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

Exercises: Set B

Assigning Costs to Products: Weighted Typical Method. Varian Company type of supplies the weighted average strategy for its process costing mechanism. The Molding department at Varian started the month of January through 80,000 devices in work-in-procedure inventory, every one of which were completed and moved out in the time of January. An additional 90,000 devices were started throughout the month, 30,000 of which were completed and transferred out during January. A total of 60,000 systems stayed in work-in-process inventory at the finish of January and also were at varying levels of completion, as displayed in the complying with.


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

The adhering to expense indevelopment is for the Molding department at Varian Company 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 during the month $1,210,000 $ 980,000 $1,450,000 $3,640,000

Required:

Determine the systems to be accounted for and systems accounted for; then calculate the indistinguishable systems for direct materials, straight labor, and also overhead. (Hint: This calls for perdeveloping step 1 of the four-step process.) Calculate the price per tantamount unit for direct products, straight labor, and also overhead. (Hint: This needs perdeveloping action 2 and also step 3 of the four-step procedure.) Assign expenses to devices moved out and also to units in finishing WIP inventory. (Hint: This requires performing action 4 of the four-action process.) Confirm that total prices to be accounted for (from action 2) equates to total expenses accounted for (from step 4). Keep in mind that minor differences may happen as a result of rounding the cost per identical unit in step 3. Explain the meaning of tantamount units.

Process Costing Journal Entries. Westside Chemicals produces paint thinner in three handling departments—Mixing, Testing, and Packaging. Transactions for the month of September are shown as complies with.

Direct materials totaling $80,000 are requisitioned and also 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 (weras payable) incurred by each department are as follows:


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

Manufacturing overhead prices are used to each department as follows:


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

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

Required:

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

Problems

Production Cost Report: Weighted Typical Method. Calvin Chemical Company kind of produces a chemical offered in the production of silsymbol wafers. Calvin Chemical supplies the weighted average technique for its procedure costing system. The Mixing department at Calvin Chemical started the month of June via 5,000 systems (gallons) in work-in-process inventory, every one of which were completed and also moved out throughout June. An extra 15,000 systems were began in the time of the month, 11,000 of which were completed and also transferred out in the time of June. A complete of 4,000 devices stayed in work-in-process inventory at the end of June and were at differing levels of completion, as shown in the complying with.


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

The price information 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 price report for the Mixing department at Calvin Chemical Company kind of for the month of June. Confirm that complete prices to be accounted for (from action 2) equals complete prices accounted for (from action 4). Note that minor differences might occur because of rounding the price per indistinguishable unit in action 3. According to the manufacturing price report, what is the full expense per tantamount unit for the job-related performed in the Mixing department? Which of the three product expense components is the greatest, and what percent of the complete does this product price represent?

Production Cost Report: Weighted Median Method. Quality Confections Company type of manufactures chocolate bars in two handling departments, Mixing and Packaging, and provides the weighted average technique for its process costing mechanism. The table that complies with mirrors indevelopment for the Mixing department for the month of March.


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

Required:

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

Production Cost Report and Journal Entries: Weighted Average Method. Wood Products, Inc., manufactures plywood in two processing departments, Milling and Sanding, and supplies the weighted average approach for its process costing device. The table that follows shows information 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 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 in the time of the Period
Direct materials $45,000
Direct labor $14,000
Overhead $16,000

Required:

Prepare a production cost report for the Milling department for the month of April. Confirm that complete expenses to be accounted for (from action 2) amounts to complete expenses accounted for (from step 4); minor distinctions might happen because of rounding the cost per tantamount unit in action 3.

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

The expense of straight products put right into manufacturing throughout the month (from step 2). Direct labor prices incurred in the time of the month but not yet paid (from action 2). The application of overhead expenses during the month (from step 2). The transport of costs from the Milling department to the Sanding department (from action 4).

One Step Further: Skill-Building Cases

Web Project: Production Company Plant Tour. Using the Web, discover a agency that provides a virtual tour of its production procedures. Document your findings by completing the following needs.

Required:

Summarize each action in the manufacturing procedure. Which type of costing device (task or process) would certainly you expect 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 mechanism does Coca-Cola use? Exsimple. What is the purpose of preparing a manufacturing expense report? What information outcomes from preparing a production expense report for the mixing and also blending department at Coca-Cola? Based on the information provided, what is the minimum number of production price reports that Coca-Cola prepares each reporting period? Exordinary.

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

Required:

What kind of costing mechanism does Wrigley use? Exsimple. What is the function of preparing a production cost report? What indevelopment results from preparing a manufacturing cost report for Wrigley’s Packaging department? Based on the indevelopment gave, what is the minimum variety of production cost reports that Wrigley prepares each reporting period? Exordinary.

Group Activity: Job or Process Costing? Form teams of two to 4 students. Each team have to determine whether a process costing or job costing device is most likely supplied to calculate product prices for each item provided in the adhering to and also should be prepared to describe its answers.

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

Comprehensive Cases

Ethics: Manipulating Percentage of Completion Price quotes. Computer Tech Corporation produces computer key-boards, and its fiscal year ends on December 31. The weighted average method is supplied for the company’s process costing system. As the controller of Computer Tech, you current December’s production price report for the Assembly department to the president of the company. The Assembly department is the last handling department prior to items are moved to finished items inventory. All 160,000 systems completed and also transferred out throughout the month were sold by December 31.

The board of directors at Computer Tech establimelted a compensation motivation arrangement that consists of a substantial bonus for the president of the agency if yearly net revenue before taxes exceeds $2,000,000. Preliminary figures present present year net earnings prior to taxes totaling $1,970,000, which is short of the targain by $30,000. The president philosophies you and asks you to boost the percent of completion for the 40,000 units in ending WIP inventory to 90 percent for straight products and also to 95 percent for straight labor and also overhead. Even though you are confident in the percenteras supplied to prepare the production price report, which appears as follows, the president insists that his change is minor and also will have bit affect on just how investors and also creditors see the firm.


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Required:

Why is the president asking you to increase the portion of completion estimates? Prepare another manufacturing price report for Computer Tech Company kind of that contains the president’s revisions. Indicate what influence the president’s repursuit will certainly have on cost of products marketed and also on net earnings (disregard income taxes in your calculations).

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

Financial outcomes for the first 11 months of the current fiscal year (via February 28) are well below expectations of administration, owners, and creditors. Halfmeans through the month of March, the chief executive officer and also chief financial officer asked the controller to estimate the production results for the month of March in the develop of a manufacturing expense report (the firm only has actually one manufacturing department). This report is shown as complies with.


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Armed via the preliminary manufacturing expense report for March, and knowing that the company’s manufacturing is well below capacity, the CEO and also CFO decide to create as many type of systems as feasible for the last half of March even though sales are not expected to boost any type of time quickly. The production manager is told to push his employees to gain as far as feasible via manufacturing, thereby increasing the percentage of completion for finishing WIP inventory. However, since the production process takes 3 weeks to complete, all the devices produced in the last half of March will certainly be in WIP inventory at the end of March.

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Required:

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

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

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

Units began and partially completed throughout the duration will certainly rise to 225,000 (from the initial estimate of 70,000). This is the projected finishing WIP inventory at March 31. Percentage of completion approximates for devices in finishing WIP inventory will boost to 80 percent for straight products, 85 percent for straight labor, and also 90 percent for overhead. Costs incurred throughout the period will certainly rise to $95,000 for straight materials, $102,000 for straight labor, and also $150,000 for overhead (the majority of overhead costs are fixed). All devices completed and transferred out throughout March are sold by March 31. Compare your brand-new production price report through the one prepared by the controller. How much carry out you intend profit to rise as a result of raising manufacturing throughout the last half of March? (Ignore revenue taxes in your calculations.) Is the request made by the CEO and also CFO ethical? Explain your answer.