COST OF PRODUCTION
REPORT
AVERAGE COSTING
Introduction
The basic accounting procedures costing with no beginning work in process
were presented in the previous chapter/discussion.
The ending work in process inventory of the last period becomes the
beginning work in process inventory of the succeeding period.
OBJECTIVE: Discuss the procedure in the preparation of cost of production
report with both beginning and ending work in process inventory.
Accounting for beginning work in process
Questions that must be considered in the preparation of cost of production
report.
In the preparation of a cost of production report, the existence of beginning
work in process inventories poses a problem because of the following questions
that must be considered:
1.Should distinction be made between completed units from the beginning work
in process inventory and completed units from the current period?
2.Should the equivalent production of all the units completed during the current
period be considered as 100% complete regardless of the stage of completion
(work done) of the beginning work in process inventory?
3.Should the costs of beginning work in process inventory be included to costs
that have been added to production during the current period to arrive at the
equivalent unit costs?
Average Costing
The average cost method combines rather than separates completed units from
beginning work in process and from new production.
• All the completed units are given 100% equivalent production regardless of
the stage of completion of the beginning work in process inventory.
• The average unit cost is computed by adding the cost of each category
(materials, labor, overhead, and transferred in cost) to the cost incurred for
that category in the current month and dividing the resulting total by the
equivalent units of production.
• Both completed units and ending work in process inventory are valued using
the same average unit cost.
COMPREHENSIVE
ILLUSTRATION
Star Paper Company
CUTTING DEPARTMENT
Before recording the costs of the units transferred out to the Assembly
Department, the Work in Process – Cutting Department in the general ledger
shows a balance of P351,294 on February 28, 2018 as shown below:
Work in Process - Cutting Department
Date Explanation Debit Credit Balance
2018
Jan. 31 Materials 77,280.00 77,280.00
31 Labor 95,616.00 172,896.00
31 Overhead 156,632.00 329,528.00
31 Transferred to Assembly Dept. 264,480.00 65,048.00
Feb. 28 Materials 69,944.00 134,992.00
28 Labor 82,416.00 217,408.00
28 Overhead 133,886.00 351,294.00
Cost data
Cost Last Month
Materials 22,560.00
Labor 13,536.00
Overhead 28,952.00
Total last Month's Costs 65,048.00
Cost Current Month
Materials 69,944.00
Labor 82,416.00
Overhead 133,886.00
Total Current Month's Costs 286,246.00
351,294.00
Production Report
Note: Stage of completion of the beginning work in process is not necessary in the average method.
CUTTING DEPARTMENT
Monthly Production Report
February 2018
Quantity
Work in Process- Beginning 3,760
Started in Process 11,160
Transferred Out to Next Department 9,600
Work in Process - Ending 5,320
Stage of Completion of Work in Process Beginning Ending
Materials 100% 100%
Labor 40% 45%
Overhead 55% 55%
Equivalent Units of Production
CUTTING DEPARTMENT
Equivalent Production Computations
Month of February 2018
Materials
Transferred Out to Next Department 9,600
Work in Process-End (5,320 x 100%) 5,320
Equivalent Units for Materials 14,920
Labor
Transferred Out to Next Department 9,600
Work in Process-End (5,320 x 45%) 2,394
Equivalent Units for Labor 11,994
Overhead
Transferred Out to Next Department 9,600
Work in Process-End (5,320 x 55%) 2,926
Equivalent Units for Overhead 12,526
The stage of completion of the beginning work in process is DISREGARDED.
CUTTING DEPARTMENT
Cost of Production Report
Month of February 2018
QUANTITY SCHEDULE Units
(a) Quantity to Be Accounted For:
Work in Process-Beginning 3,760
Started in Process - Current Month 11,160
Total to be accounted for 14,920
(b) Quantity Accounted For:
Transferred Out to Next Department 9,600
Work in Process-Ending 5,320
Total Accounted for 14,920
COST SCHEDULE Total Cost Equivalent Units Unit Costs
(c) Costs to Be Accounted For:
Costs Incurred in this Department
Materials: Beginning Work in Process 22,560
Added this Month 69,944
Total Materials 92,504 / 14,920 6.20
Labor: Beginning Work in Process 13,536
Added this Month 82,416
Total Labor 95,952 / 11,994 8.00
Overhead Beginning Work in Process 28,952
Added this Month 133,886
Total Labor 162,838 / 12,526 13.00
Total Costs to Be Accounted For 351,294 27.20
(d) Cost Accounted For:
Transferred Out to Next Department 261,120 = 9,600 x 27.20
Work in Process-Ending
Costs Incurred in this Dept.
Materials 32,984 = 5,320 x 6.20
Labor 19,152 = 2,394 x 8.00
Overhead 38,038 = 2,926 x 13.00
Total Work in Process 90,174
Total Costs Accounted for 351,294
ASSEMBLY DEPARTMENT
On February 28 the Work in Process – Assembly Department account shows a
balance of P469,391. This amount is composed of the following.
Cost Last Month of the Work in Process
Costs Transferred in From Prior Department 28,130.00
Costs Incurred in this Department
Materials 1,455.00
Labor 5,529.00
Overhead 4,656.00
Total Costs Last month 39,770.00
Cost Current Month
Costs Transferred in From Prior Department 261,120.00
Costs Incurred in this Department
Materials 23,128.00
Labor 70,638.00
Overhead 74,735.00
Total Current Month's Costs 429,621.00
ASSSEMBLY DEPARTMENT
Monthly Production Report
February 2018
Quantity
Work in Process- Beginning 970
Transferred In - Current Month 9,600
Transferred Out to Next Department 9,470
Work in Process - Ending 1,100
Stage of Completion of Work in Process Beginning Ending
Transferred In Cost 100% 100%
Materials 60% 55%
Labor 60% 55%
Overhead 60% 55%
ASSEMBLY DEPARTMENT
Equivalent Production Computations
Month of February 2018
Transferred In Cost from Prior Department
Transferred Out to Next Department 9,470
Work in Process-Ending (1,100 x 100%) 1,100
Equivalent Units for T-in Costs 10,570
Materials
Transferred Out to Next Department 9,470
Work in Process-Ending (1,100 x 55%) 605
Equivalent Units for Materials 10,075
Labor
Transferred Out to Next Department 9,470
Work in Process-Ending (1,100 x 55%) 605
Equivalent Units for Labor 10,075
Overhead
Transferred Out to Next Department 9,470
Work in Process-Ending (1,100 x 55%) 605
Equivalent Units for Labor 10,075
ASSEMBLY DEPARTMENT
Cost of Production Report
Month of February 2018
QUANTITY SCHEDULE Units
(a) Quantity to Be Accounted For:
Work in Process-Beginning 970
Transferred In - Current Month 9,600
Total to be accounted for 10,570
(b) Quantity Accounted For:
Transferred Out to Next Department 9,470
Work in Process-Ending 1,100
Total Accounted for 10,570
COST SCHEDULE Total Cost Equivalent Units Unit Costs
(c) Costs to Be Accounted For:
Costs Transferred In from Prior Department 28,130
Transferred In - Current Month 261,120
Total Transferred In Costs 289,250 / 10,570 27.37
Costs Incurred in this Department
Materials: Beginning Work in Process 1,455
Added this Month 23,128
Total Materials 24,583 / 10,075 2.44
Labor: Beginning Work in Process 5,529
Added this Month 70,638
Total Labor 76,167 / 10,075 7.56
Overhead Beginning Work in Process 4,656
Added this Month 74,735
Total Labor 79,391 / 10,075 7.88
Total Costs in This Department 180,141 17.88
Costs to Account For 469,391 45.25
(d) Cost Accounted For:
Transferred Out to Next Department 428,467 = 9,470 x 45.25
Work in Process-Ending
Costs From Prior Department 30,107 = 1,100 x 27.37
Costs Incurred in this Dept.
Materials 1,476 = 605 x 2.44
Labor 4,574 = 605 x 7.56
Overhead 4,767 = 605 x 7.88
Total Work in Process 40,924
Total Costs Accounted for 469,391
PACKAGING DEPARTMENT
COST DATA
Cost Data for the month of January and February
Beginning Work in Process 9Cost Last Month)
Costs Transferred In From Prior Department 133,280.00
Costs in this Department
Materials -
Labor 2,230.00
Overhead 1,020.00
Account balance, January 31 136,530.00
Cost this Month
Costs Transferred In From Prior Department 428,467.00
Costs in this Department
Materials 2,560.00
Labor 20,480.00
Overhead 16,885.00
Total Costs this Month 468,392.00
ASSSEMBLY DEPARTMENT
Monthly Production Report
February 2018
Quantity
Work in Process- Beginning 2,720
Transferred In - Current Month 9,470
Transferred Out to Finished Goods 6,370
Work in Process - Ending 5,820
Stage of Completion of Work in Process Beginning Ending
Transferred In Cost 100% 100%
Materials 0% 0%
Labor 20% 20%
Overhead 15% 15%
PACKAGING DEPARTMENT
Equivalent Production Computations
Month of February 2018
Transferred In Cost from Prior Department
Transferred Out to Finished Goods 6,370
Work in Process-Ending (5,820 x 100%) 5,820
Equivalent Units for T-in from Prior Dept. 12,190
Materials
Transferred Out to Finished Goods 6,370
Work in Process-Ending (5,820 x 0%) -
Equivalent Units for Materials 6,370
Labor
Transferred Out to Finished Goods 6,370
Work in Process-Ending (5,820 x 20%) 1,164
Equivalent Units for Labor 7,534
Overhead
Transferred Out to Finished Goods 6,370
Work in Process-Ending (5,820 x 15%) 873
Equivalent Units for Labor 7,243
PACKAGING DEPARTMENT
Cost of Production Report
Month of February 2018
QUANTITY SCHEDULE Units
(a) Quantity to Be Accounted For:
Work in Process-Beginning 2,720
Transferred In - Current Month 9,470
Total to be accounted for 12,190
(b) Quantity Accounted For:
Transferred Out to Finished Goods 6,370
Work in Process-Ending 5,820
Total Accounted for 12,190
COST SCHEDULE Total Cost Equivalent Units Unit Costs
(c) Costs to Be Accounted For:
Costs Transferred In from Prior Department
Work in Process - Beginning 133,280
Transferred In - Current Month 428,467
Total Transferred In Costs 561,747 / 12,190 46.08
Costs Incurred in this Department
Materials: Beginning Work in Process -
Added this Month 2,560
Total Materials 2,560 / 6,370 0.40
Labor: Beginning Work in Process 2,230
Added this Month 20,480
Total Labor 22,710 / 7,534 3.01
Overhead Beginning Work in Process 1,020
Added this Month 16,885
Total Labor 17,905 / 7,243 2.47
Total Costs in This Department 43,175 5.88
Costs to Account For 604,922 51.96
(d) Cost Accounted For:
Transferred Out to Finished Goods 331,076 = 6,370 x 51.96
Work in Process-Ending
Costs From Prior Department 268,186 = 5,820 x 46.08
Costs Incurred in this Dept.
Materials - = - x 0.40
Labor 3,504 = 1,164 x 3.01
Overhead 2,156 = 873 x 2.47
Total Work in Process 273,846
Total Costs Accounted for 604,922
Recording Sales and Cost of Goods Sold
Assume that Star Paper Company sold 6,300 units in February at P80 per unit
or at a selling price of P504,000.
The entries to record sales and cost of goods sold during February are
Accounts Receivable 504,000
Sales 504,000
Cost of Goods Sold 327,978
Finished Goods 327,978
END
