actg 2p21 mar 3

Overview of Production Cost Report

• The production cost report consists of five steps necessary to track costs through manufacturing processes.

• Focus on valuing completed inventory (21,500 units) transferred to welding and ending inventory (13,500 units) remaining in the cutting process.

Steps in Production Cost Reporting

Step 1: Units to Account For

• Total Units: 135,000 units need to be accounted for.

  • This includes beginning inventory and units started during the period.

• Beginning Work in Progress (WIP): 40,500 units are carried over from the previous period.

• Units Started During Current Period: Calculation necessary to determine total efforts.

Step 2: Cost to Account For

• Conversion Costs: Keep track of beginning WIP cost and added conversion costs during the period.

  • Total cost: $1,000,005.87.

• Raw Materials: Add the cost of raw materials used during the period.

  • Example: $200,000,565,000 in raw materials.

Step 3: Completed and Transferred Out Units

• Transfer to Welding: Completed and transferred out 21,500 units to the welding phase.

• Valuation: Costs are calculated using the formula:

  • Example: 21,500 units × rate (e.g., $50) for valuation.

Step 4: Valuation

• Completed and Transferred Out: Amount realized for units completed and transferred.

  • Total value of completed units: Approximately $9,000,404.87.

• Ending Inventory Valuation: Ending inventory value ($536,001.01) should reflect remaining units in the cutting process as of the period-end.

Step 5: Reconciliation and Final Review

• Physical Flow of Units: Confirm that all units are accounted for accurately with respect to cost.

• Costs Assessment: Ensure no costs are omitted or erroneously included.

  • Review should check the total costs remain consistent with the physical inventory.

Work in Process and Accounting Entries

• WIP Account for Cutting: Document WIP costs and conversions as they occur.

• Debit/Credit Entries: Map out how costs flow into the work in progress account each period.

  • Incorrect entries may need adjustments to ensure accuracy.

Material & Conversion Cost Calculations

• Cost of Direct Material: Understand the relationship between raw materials and production.

  • Example: Use equivalent units to ascertain material costs against total costs.

• Conversion Cost Analysis: Evaluate costs attributed to labor and overhead.

  • Direct labor conversions calculated to gauge efficiency.

Key Takeaways

• Proper tracking of units and associated costs through the production cost report is crucial for accurate financial reporting.

• Each step meticulously accounts for both physical units and the costs leading into the subsequent production stages, ensuring a comprehensive understanding of the manufacturing process.