4-1

Production Report

Production Report
ŒA quantity schedule
showing the flow of units
Section 1 and the computation of
equivalent units.

A computation of
Section 2 cost per equivalent unit.

Section 3

Production Report

Production Report
Ž A reconciliation of cost
flows for the period,
Section 1 including:
❖Total cost for units
completed and
Section 2 transferred from the
processing department.
❖Total cost for partially
completed units
Section 3 remaining in work in
progress.
 4-2

Production Report Example

§ Double Diamond Skis uses process costing to

determine unit costs in its Shaping and Milling
Department.
§ Double Diamond uses the weighted average
cost procedure.
§ Using the following information for the month of
May, let’s prepare a production report for
Shaping and Milling.

Production Report Example

Cost
Work in progress, May 1: 200 units
Materials: 50% complete. £ 3,000
Conversion: 30% complete. 1,000

Units started into production in May: 5,000

Units completed and transferred out in May: 4,800

Costs added to production in May

Materials cost £ 74,000
Conversion cost 70,000
 4-3

Production Report
WEIGHTED AVERAGE
Costs incurred in
Cost per Beg WIP ($) +
the period
Equivalent unit =
Equivalent units

Costs incurred in
Beg WIP ($) +
the period
=
Units complete + EU of ending WIP

Cost per
Ending WIP ($) = EU of ending WIP x
Equivalent unit

Costs of Cost per

= Units complete x
Finished goods Equivalent unit
5

Production Report example

WEIGHTED AVERAGE
Section 1: Quantity Schedule with Equivalent Units
Units to be accounted for:
Work in progress, May 1
Started into production
Total units

Equivalent units
Materials Conversion
Units accounted for as follows:
Completed and transferred
Work in progress, May 31
Materials 40% complete
Conversion 25% complete
 4-4

Production Report example

WEIGHTED AVERAGE
Section 2: Compute cost per equivalent unit
Total
Cost Materials Conversion
Cost to be accounted for:
Work in progress, May 1
Costs added in the Shipping
and Milling Department
Total cost

Equivalent units
Cost per equivalent unit
Total cost per equivalent unit

£……….. ÷ ………… units = £………... (rounded)

Production Report example

WEIGHTED AVERAGE

Section 3: Cost Reconciliation

……...units @ £……… Total Equivalent Units

Cost Materials Conversion
Cost accounted for as follows:
Transferred out during May
Work in progress, May 31:
Materials
Conversion
Total work in progress, May 31
Total cost accounted for
 4-5

Production Report Example - FIFO

Work in progress, May 1: 200 units
Cost
Materials: 50% complete. £ 3,000
Conversion: 30% complete. 1,000
Units started into production in May: 5,000
Units completed and transferred out in May: 4,800
Costs added to production in May
Materials cost £ 74,000
Conversion cost 70,000
Work in progress, May 31: 400 units
Materials 40% complete.
Conversion 25% complete.

FIFO
Cost per Costs incurred in the period
Equivalent unit = Equivalent units
Costs incurred in the period
=
EU of
EU to complete Units started &
+ + ending WIP
Beg WIP complete in the period

Costs of Beg WIP EU to

Beg WIP Cost per
& complete in the = + complete x
($) EU
period Beg WIP
Costs of units
Units started & complete Cost per
started & complete = x
in the period EU
in the period

Ending WIP ($) = EU of ending WIP x Cost per EU

10
 4-6

Production Report example

FIFO
Section 1: Quantity Schedule with Equivalent Units
Units to be accounted for:
Work in progress, May 1
Started into production
Total units

Equivalent units
Materials Conversion
Units accounted for as follows:
Work in process, May 1 completed
Started & completed
Work in progress, May 31

Total units

Production Report example

FIFO
Section 2: Compute cost per equivalent unit
Total
Cost Materials Conversion
Cost to be accounted for:
Work in progress, May 1
Costs added in the Shipping
and Milling Department
Total cost

Equivalent units
Cost per equivalent unit

£ ÷ ………. units = £…….. (rounded)

 4-7

Production Report example -

FIFO
Section 3: Cost Reconciliation

Process Costing
Typical Accounting Entries

Let’s look at the accounting

journal entries for a process
cost system. We’ll omit the
numbers so that we can focus
on concepts.
 4-8

Process Costing
Typical Accounting Entries

GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Raw Materials XXXXX
Creditors XXXXX
To record the purchase of material.

Process Costing
Typical Accounting Entries

GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Raw Materials XXXXX
Creditors XXXXX
To record the purchase of material.

Work in Progress - Department A XXXXX

Work in Progress - Department B XXXXX
Raw Materials XXXXX
To record the use of direct material.
 4-9

Process Costing
Typical Accounting Entries

GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Work in Progress - Department A XXXXX
Work in Progress - Department B XXXXX
Salaries and Wages Payable XXXXX
To record direct labour costs.

Process Costing
Typical Accounting Entries

GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Work in Progress - Department A XXXXX
Work in Progress - Department B XXXXX
Manufacturing Overhead XXXXX
To apply overhead to departments.
 4-10

Process Costing
Typical Accounting Entries

GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Work in Progress - Department B XXXXX
Work in Progress - Department A XXXXX
To record the transfer of goods from
Department A to Department B.

Process Costing
Typical Accounting Entries

GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Finished Goods XXXXX
Work in Progress - Department B XXXXX
To record the completion of goods
and their transfer from Department B
to finished goods stock.
 4-11

Process Costing
Typical Accounting Entries

GENERAL JOURNAL Page 4

Post.
Date Description Ref. Debit Credit
Debtors XXXXX
Sales XXXXX
To record sales on account.

Cost of Goods Sold XXXXX

Finished Goods XXXXX
To record cost of goods sold.

LOSS
NORMAL LOSS
A loss which is expected during a process
It will not be allocated any costs
The total process cost will be spread over the expected output
units
ABNORMAL LOSS
§ Is an extra loss
§ A loss which is unexpected from the operations due to the
actual loss is greater than normal or expected loss
§ Every unit of abnormal loss is valued at the same amount of a
unit of good output
§ The costs of abnormal loss will be written off (debited) to the IS
 4-12

LOSS
Smith Company reported the following activity in Department A for the
month of June:
Percent Completed
Units Materials Conversion
Work in progress, June 1 300 40% 20%

Units started into production in June 6,000

Units completed and transferred out 5,400

of Department A during June

Work in progress, June 30 900 60% 30%

Beg WIP ($)

- Direct material $ 6,119
- Conversion costs $ 3,920
Normal loss: 2% of complete units, sold at $5/ unit as craps.
Abnormal loss: 200 units
Costs incurred in the period:
Direct material: $ 118,621
Conversion costs: $ 81,130

SERVICE COST APPORTIONMENT

 4-13

DIRECT METHOD

Direct method

Reapportion the costs of each service

cost centre to production cost centres
only
Cost of service Reapportioned
cost centre A
Production
Cost of service Reapportioned cost
cost centre B
centres
Cost of service Reapportioned
cost centre C

DIRECT METHOD OF REAPPORTIONMENT

For example: Reapportionment of service cost centre costs

You now have further information about the use that assembly
and finishing make of stores and maintenance:
Assembly Finishing
Number of stores requisitions 100 30
Maintenance call outs per annum 30 20

Assembly Finishing Stores Maintenance Total

$ $ $ $ $
OH cost 83,900 47,450 46,600 43,550 221,500

Reapportion the service centre costs to the production cost centres

 4-14

2nd STAGE – REAPPORTIONMENT OF SERVICE

COST CENTRE COSTS
Assembly Finishing Stores Maintenance
Total
$ $ $ $ $

Stores (requisition)

Maintenance (call outs)

STEP DOWN METHOD OF REAPPORTIONMENT

Step down method

Step 1 all of the other centres

Reapportion one of to (production & service)
service cost centre’s which make use of its
overhead service

Step 2
the production
Reapportion the overheads
to departments only
of the remaining service
(the other service cost
cost centre
centre is ignored)
 4-15

STEP DOWN METHOD OF REAPPORTIONMENT

has higher overhead

costs
Service Compared
Carries out a bigger
cost centre with
proportion of work for other
other(s) service cost centre

Reapportioned first

STEP DOWN METHOD OF REAPPORTIONMENT

Cost of
service
cost
centre A

Cost of
service
cost centre
B

Cost of
service
cost
centre C

Production Production Production

cost centre X cost centre Y cost centre Z
 4-16

STEP DOWN METHOD OF REAPPORTIONMENT

A company has 2 production depts & 2 service depts (store &

maintenance). The following information about activity in a recent
costing period is available
Production dept Store dept Maintenance
1 2 dept
Overhead costs $10,030 $8,970 $10,000 $8,000
Value of material req $30,000 $50,000 - $20,000
Maintenance hrs used 8,000 1,000 1,000 -

Required
Using the information given below, apportion the service dept overhead
costs using the step down method of apportionment, starting with the
stores department.

STEP DOWN METHOD OF REAPPORTIONMENT

Production depts Store dept Maintenance

1 2 dept
$ $ $ $
Overhead costs
Apportion stores

Apportion maintenance
 4-17

End of Chapter 6

I’m ready to process

some leisure time.