# What is a Cost of Production Report?

A cost of production report is a document used by manufacturers to calculate the cost of producing goods during a specific period. This report is used to determine the cost of goods sold and to determine the value of inventory. The cost of production report is commonly used in process costing systems where goods are produced through a series of processes and not produced individually.

Here’s an example of a cost of production report:

ABC Manufacturing Company produces widgets through a process costing system. During the month of January, the company produced 10,000 widgets. The following information was collected:

• Beginning Work in Process Inventory: 2,000 units, 100% complete as to material and 50% complete as to conversion, with a cost of \$20,000.
• Direct Materials Used: \$40,000
• Direct Labor Used: \$30,000
• Ending Work in Process Inventory: 3,000 units, 100% complete as to material and 80% complete as to conversion.

Using this information, the cost of production report for the month of January can be calculated as follows:

1. Calculate the equivalent units for direct materials and conversion costs.

Equivalent Units for Direct Materials:

Beginning Work in Process Inventory: 2,000 units

Current Production: 10,000 units

Total Units: 12,000 units

Equivalent Units: 12,000 units

Equivalent Units for Conversion Costs:

Beginning Work in Process Inventory: 2,000 units x 50% = 1,000 units

Current Production: 10,000 units

Total Units: 11,000 units

Equivalent Units: 11,000 units x 80% = 8,800 units

1. Calculate the total costs incurred during the month.

Direct Materials Used: \$40,000

Direct Labor Used: \$30,000

Total Costs: \$90,000

1. Calculate the cost per equivalent unit.

Direct Materials Cost per Equivalent Unit: \$40,000 / 12,000 units = \$3.33 per unit

Conversion Costs Cost per Equivalent Unit: \$20,000 / 8,800 units = \$2.27 per unit

1. Calculate the cost of units completed and transferred out.

Equivalent Units for Direct Materials: 12,000 units

Direct Materials Cost per Equivalent Unit: \$3.33 per unit

Cost of Units Completed and Transferred Out: 10,000 units x \$3.33 per unit = \$33,300

Equivalent Units for Conversion Costs: 8,800 units

Conversion Costs Cost per Equivalent Unit: \$2.27 per unit

Cost of Units Completed and Transferred Out: 8,800 units x \$2.27 per unit = \$19,976

1. Calculate the cost of ending work in process inventory.

Equivalent Units for Direct Materials: 3,000 units

Direct Materials Cost per Equivalent Unit: \$3.33 per unit

Cost of Ending Work in Process Inventory: 3,000 units x \$3.33 per unit = \$9,990

Equivalent Units for Conversion Costs: 3,000 units x 80% = 2,400 units

Conversion Costs Cost per Equivalent Unit: \$2.27 per unit

Cost of Ending Work in Process Inventory: 2,400 units x \$2.27 per unit = \$5,448

1. Summarize the cost of production report.

Total Cost of Units Completed and Transferred Out: \$33,300 + \$19,976 = \$53,276

Cost of Ending Work in Process Inventory: \$9,990 + \$5,448 = \$15,438

Total Cost of Production: \$68,714

The cost of production report can be used by management to make decisions about how to allocate resources and to improve efficiency. For example, management could use the report to identify areas where costs are high and to take steps to reduce costs.

Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 13 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/