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
- Manufacturing Overhead: $20,000
- 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:
- 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
- Calculate the total costs incurred during the month.
Direct Materials Used: $40,000
Direct Labor Used: $30,000
Manufacturing Overhead: $20,000
Total Costs: $90,000
- 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
- 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
- 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
- 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
| Cost of Production Report | For the Month of January |
|---|---|
| Units | |
| Beginning work in process inventory | 2,000 units |
| Units started during the period | 10,000 units |
| Total units accounted for | 12,000 units |
| Units completed and transferred out | 10,000 units |
| Ending work in process inventory | 3,000 units |
| Equivalent Units | |
| Direct materials | 12,000 units |
| Conversion costs | 8,800 units |
| Costs | |
| Direct materials used | $40,000 |
| Direct labor used | $30,000 |
| Manufacturing overhead | $20,000 |
| Total costs | $90,000 |
| Cost per Equivalent Unit | |
| Direct materials cost per equivalent unit | $3.33 per unit |
| Conversion costs cost per equivalent unit | $2.27 per unit |
| Cost of Goods Completed and Transferred Out | |
| Direct materials cost of units completed and transferred out | $33,300 |
| Conversion costs cost of units completed and transferred out | $19,976 |
| Total cost of units completed and transferred out | $53,276 |
| Cost of Ending Work in Process Inventory | |
| Direct materials cost of ending work in process inventory | $9,990 |
| Conversion costs cost of ending work in process inventory | $5,448 |
| Total cost of ending work in process inventory | $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.