COST OF PRODUCTION REPORT Cost data

AVERAGE COSTING
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 Production Report
period? Note: Stage of completion of the beginning work in
2. Should the equivalent production of all the process is not necessary in the average method.
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 Equivalent Units of Production
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:
On February 28 the Work in Process – Assembly
Department account shows a balance of P469,391. This
amount is composed of the following.
PACKAGING DEPARTMENT
Recording Sales and Cost of Goods Sold  Units that were in the beginning work in
Assume that Star Paper Company sold 6,300 units in process inventory are presented separately
February at P80 per unit or at a selling price of from the units that are started and completed
P504,000. in the current month in Section (d) Costs
The entries to record sales and cost of goods sold during Accounted For on the cost of production report.
February are  The units transferred out to the department
during the month are composed of first the
Accounts Receivable 504,000 beginning work in process and the units started
Sales 504,000 and finished in the current month.

Cost of Goods Sold 327,978 COMPREHENSIVE ILLUSTRATION Star Paper Company

Finished Goods 327,978
CUTTING DEPARTMENT
COST OF PRODUCTION REPORT
FIFO METHOD
First In, First Out Costing
Under the first in, first out (FIFO) method, the units in
the beginning work in process inventory are presented
separately from the units started in the current month.
• The units in process at the beginning are
assumed to have been completed first.
• The work done on the beginning WIP last
month is kept separate from the work done
during the current month.
• Two equivalent units of production for
completed units are computed, (1) units in
process beginning completed this month and
(2) units started in process completed this
month.
• Costs incurred in the current month and units
produced in the current month are used to
compute equivalent unit cost.
This method is discussed in detail in Chapter 12.
Advantages of using FIFO method
1. The unit costs are more accurate because they
relate more directly to the units in the
beginning inventory and the units started and
completed during the period.
2. The unit costs reflect current conditions more
clearly, because the cost of completed units
that were in process at the beginning of the
period and the cost of started during the period
are computed separately.
3. Major changes in cost can be monitored easily
for control purposes.
APPLICATION
 the costs of the beginning work in process
inventory are kept separate and assigned only
to the units in the beginning work in process.
 Costs incurred during the current month are
considered to be used first to complete the
beginning work in process inventory and are
added to the beginning costs balance.
ASSEMBLY DEPARTMENT
ASSEMBLY DEPARTMENT

PACKAGING DEPARTMENT