A cost of production report is prepared for each processing

department at periodical intervals.

A cost of production report is prepared for each processing

department at periodical intervals.

Cost of Production ReportCost of Production ReportCost of Production ReportCost of Production Report

The cost of production report provides the following production quantity and cost data:

The units for which the department is accountable and the deposition of those units.

The production costs incurred by the department and the allocation of those costs between completed and partially completed units.

Cost of production ReportCost of production Report

Quantity Schedule:Quantity Schedule: Units started in the process Units started in the process Units transfer to the next departmentUnits transfer to the next department Units still in processUnits still in process Units lost in processUnits lost in process

Cost charge to the Department:Cost charge to the Department:

Cost added by the department:Cost added by the department:

MaterialsMaterials

LaborLabor

FOHFOH

Total cost to be accounted forTotal cost to be accounted for

Cost accounted as follows:Cost accounted as follows: Transfer to next department:Transfer to next department: W-I-P (ending inventory):W-I-P (ending inventory): Material Material LaborLabor FOHFOH

Total cost accounted forTotal cost accounted for

Equivalent Units...Equivalent Units...

– is a measure of the amount of is a measure of the amount of work done during a production work done during a production period, expressed in terms of fully period, expressed in terms of fully completed units.completed units.

ABC CorporationDepartment (A)

Cost of Production ReportFor the Month of December, 2009

Quantity Schedule:Units started in the process 30,000

Units transfer to the next deptt.......................................................25,000Units still in process(80% Material, 50% Labor & FOH)……… 4,000Units lost in process…………………………………………… 1,000

30,000

Cost charge to the Deptt: Total cost Unit cost

Cost added by the department:Materials…………………………………………… Rs.56,400 Rs.2

Labor……………………………………………….. 40,500 15

FOH………………………………………………… 13,500 0.5

Total cost to be accounted for Rs.110,400 Rs.4Cost accounted as follows:Transfer to next deptt (25,000×4)…………………….. Rs.100,000

W-I-P (ending inventory):Material (3200×2)…………………………………….. Rs.6,400Labor (2,000×1.5)…………………………………….. 3,000FOH( 2,000×0.5)……………………………………… 1,000 10,400Total cost accounted for Rs110,400

Disposition of Departmental CostDisposition of Departmental Cost

““Cost accounted for as Follows” shows the disposition of Cost accounted for as Follows” shows the disposition of cost that is charged to the department.cost that is charged to the department.

The balance between the two costs is the cost of work in The balance between the two costs is the cost of work in process.process.

Inventory figure must be broken into its components that Inventory figure must be broken into its components that are Material, Labor and Factory overhead. are Material, Labor and Factory overhead.

Lost UnitsLost Units

Management is interested in comparison of Management is interested in comparison of planned and actual results.planned and actual results.

Reconciliation is done for verifying the Reconciliation is done for verifying the reported figures. reported figures.

Percent yield= Percent yield= wt. of finished product wt. of finished product × 100× 100 wt. materials charged inwt. materials charged in

This yield figure is useful to management for This yield figure is useful to management for controlling purposes.controlling purposes.

Units Lost in 1Units Lost in 1stst Department Department

Reduce the number of units Reduce the number of units

Increase in unit cost.Increase in unit cost.

The loss is assumed to apply to all good unitsThe loss is assumed to apply to all good units

DEPARTMENT (B)DEPARTMENT (B)

25,000 units transferred to Department (B)25,000 units transferred to Department (B)

Labor and factory overhead were addedLabor and factory overhead were added

Cost of production report of department (B) is Cost of production report of department (B) is different from department (A)different from department (A)

Different in following aspectsDifferent in following aspects

1.1. cost receive from previous departmentcost receive from previous department

2.2. adjusted preceding department’s unit costadjusted preceding department’s unit cost

3.3. Cost received from preceding department to be Cost received from preceding department to be included in cost of ending work in process.included in cost of ending work in process.

Units Lost in Department Subsequent Units Lost in Department Subsequent to the Firstto the First

An increase in unit cost by Rs.0.8An increase in unit cost by Rs.0.8

Cost of lost units can be computed by following Cost of lost units can be computed by following methods methods

1.1. Determine unit cost for preceding department and Determine unit cost for preceding department and subtract it from previous.subtract it from previous.

The difference will show additional cost due to lost units.The difference will show additional cost due to lost units.

2. Multiply the lost units with previous per unit cost 2. Multiply the lost units with previous per unit cost and divide by remaining units.and divide by remaining units.

The lost unit cost adjustment must be entered The lost unit cost adjustment must be entered in the Cost of Production Report.in the Cost of Production Report.

Cost of any work done on lost units Cost of any work done on lost units automatically absorbed by equivalent automatically absorbed by equivalent production figures.production figures.