# LO In a production cost report, units to be accounted for are calculated as: a Units started into production + Units in ending work in process b. Units started into production Units in beginning work in process. c. Units transferred out + Units in beginning work in process.

By knowing the equivalent units of production for materials, overhead costs and labor costs, an accountant can estimate how much more money or time is required to finish those products. Calculating equivalent units of production can also help create a financial report or understand where the money in your institution is currently invested. There is a simple formula that is used to calculate the equivalent units of production for those partially completed units. This formula not only applies to materials that are in continuous production, but also to labor costs and overhead costs. The simpler of the two methods is the weighted average method. The FIFO method is more accurate, but the additional calculations do not represent a good cost-benefit trade off. Only consider using the FIFO method when costs vary substantially from period to period, so that management can see the trends in costs.

At the end of the first quarter, there are 500 completed parts and 300 parts that are still in process. The parts maker’s best estimate is that these additional 300 parts are 50 percent completed.

## What is a production cost report?

When you use weighted averages, all work accomplished in prior periods is not factored into the equations. Process costing is a method of costing used mainly in manufacturing where units are continuously mass-produced through one or more processes. Examples of this include the manufacture of erasers, chemicals or processed food. The Assembly Department has two inputs and therefore must make two calculations for cost per equivalent unit of production. Exhibit 18A-4 shows the production cost report with the EUP calculations added.

We show this by having a Transferred In column on the production cost report. Equivalent units of production for direct materials total 50,000 because all the direct materials have been added to all 50,000 units worked on during July. Because the direct materials are added at the beginning of the process, if the units are started, then 100% of the materials have been added. A production cost report must be completed for each department. The production cost reports show the calculations for the physical flows and the cost flows of the products. Equivalent units of production is used to measure the amount of materials added to or work done on partially completed units and is expressed in terms of fully complete units.

## Cost of Goods Sold

The cost of direct materials placed into production during the month . Direct labor costs totaling \$3,500 were incurred in the Molding department, to be paid the next month. The Molding department requisitioned direct materials totaling \$2,000 to in a production cost report, units to be accounted for are calculated as be used in production. Assign costs to units transferred out and to units in ending WIP inventory. The Assembly Department has 8,000 units in process on July 1 and starts 42,000 units during the month. Therefore, to account for is 50,000 units.

The company uses a process costing and has two processing departments – department X and department Y. The processing starts in department X where three different chemicals are mixed together in equal proportions. After mixing in department X, the partially completed units are transferred to department Y. The following data has been taken from department X.

##  Activity rate = total estimated o cost / TOTAL activity

Percentage of completion estimates for units in ending WIP inventory will increase to 80 percent for direct materials, 85 percent for direct labor, and 90 percent for overhead. 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.

### How is material cost calculated?

To calculate direct material costs, add your beginning direct materials to your direct materials purchased and subtract the ending direct materials for the period.

The specific function costs are called direct labor and are assigned to work‐in‐process inventory. The general factory labor costs are indirect labor costs that are added to factory overhead. Unlike the accounting for payroll under the job order cost system, the employee does not have to be physically involved in making a product to be assigned to a specific function. The accounting for the labor costs for June includes the following journal entries, shown in the following table. Thus, the equivalent units for direct materials are generally higher than for other manufacturing expenses. Process costing assigns expenses to different departments in your business, and it accounts for various cost areas including materials and payroll.