66 8.6 Preparing a Production Cost Report – Weighted Average
Learning Objectives
- Prepare a production cost report for a processing department.
Question: The results of the four key steps are typically presented in a production cost report. The production cost report summarizes the production and cost activity within a department for a reporting period. It is simply a formal summary of the four steps performed to assign costs to units transferred out and units in ending work-in-process (WIP) inventory. What does the production cost report look like for the Assembly department at Desk Products, Inc.?
- Answer
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How Do Managers Use Production Cost Report Information?
Question: Although the production cost report provides information needed to transfer costs from one account to another, managers also use this report for decision-making purposes. What important questions can be answered using the production cost report?
Beware of Fixed Costs
Question: Why might the per unit cost data provided in the production cost report be misleading?
The four key steps of assigning costs to units transferred out and units in ending WIP inventory are formally presented in a production cost report . The production cost report summarizes the production and cost activity within a processing department for a reporting period. A separate report is prepared for each processing department. Rounding the cost per equivalent unit to the nearest thousandth will minimize rounding differences when reconciling costs to be accounted for in step 2 with costs accounted for in step 4.
Computer Application
Using Excel to Prepare a Production Cost Report
Managers typically use computer software to prepare production cost reports. They do so for several reasons:
- Once the format is established, the template can be used from one period to the next.
- Formulas underlie all calculations, thereby minimizing the potential for math errors and speeding up the process.
- Changes can be made easily without having to redo the entire report.
- Reports can be easily combined to provide a side-by-side analysis from one period to the next.
Review Figure 8.9 and then ask yourself: “How can I use Excel to help prepare this report?” Answers will vary widely depending on your experience with Excel. However, Excel has a few basic features that can make the job of creating a production cost report easier. For example, you can use formulas to sum numbers in a column (note that each of the four steps presented in Figure 8.9 has column totals) and to calculate the cost per equivalent unit. Also you can establish a separate line to double-check that
- the units to be accounted for match the units accounted for; and
- the total costs to be accounted for match the total costs accounted for.
For those who want to add more complex features, the basic data (e.g., the data in Table 8.2) can be entered at the top of the spreadsheet and pulled down to the
An example of how to use Excel to prepare a production cost report follows. Notice that the basic data are at the top of the spreadsheet, and the rest of the report is driven by formulas. Each month, the data at the top are changed to reflect the current month’s activity, and the production cost report takes care of itself.
Review problem 8.5
Using the information in Note 8.24 “Review Problem 8.4”, prepare a production cost report for the Mixing department of Kelley Paint Company for the month ended March 31. (Hint: You have already completed the four key steps in Note 8.24 “Review Problem 8.4”. Simply summarize the information in a production cost report as shown in Figure 8.9 “Production Cost Report for Desk Products’ Assembly Department”.)
- Answer
Definition
- A report that summarizes the production and cost activity within a department for a reporting period.
