1. Process Cost Systems LO 2a – Preparation of a Cost of Production Report: FIFO

2. Cost of Production Report  The cost of production report summarizes the production and cost data for a department as follows:  The units the department is accountable for and the disposition of those units  The product costs incurred by the department and the allocation of those costs between completed (transferred out) and partially completed units LO 2

3. Cost of Production Report Mixing Department of Frozen Delight Preparing a cost of production report will provide these missing amounts.

4. Determine the Units to be Assigned Costs LO 2 Step 1:

5. LO 2 Determine the Units to be Assigned Costs

6. Compute Equivalent Units of Production  Whole units are the number of units in production during a period, whether completed or not.  Equivalent units of production are the portion of whole units that are complete with respect to either materials or conversion (direct labor and factory overhead) costs. LO 2

7. Compute Equivalent Units of Production Direct Materials Frozen Delight adds all the materials at the beginning of the mixing process. Step 2:

8. LO 2 Compute Equivalent Units of Production

9. Conversion Equivalent Units  To compute equivalent units for conversion costs, it is necessary to know how direct labor and factory overhead enter the manufacturing process.  It is assumed that Frozen Delight incurs conversion costs evenly throughout its manufacturing process. LO 2

10. Conversion Equivalent Units LO 2

11. Conversion Equivalent Units LO 2

12. Determine the Cost per Equivalent Unit Step 3: Direct Materials Cost per Equivalent Unit Total Direct Materials Cost for the Period Total Equivalent Units of Direct Materials = Conversion Cost per Equivalent Unit Total Conversion Costs for the Period Total Equivalent Units of Conversion Costs =

13. LO 2 Determine the Cost per Equivalent Unit

14. LO 2 Determine the Cost per Equivalent Unit Direct Materials Cost per Equivalent Unit Total Direct Materials Cost for the Period Total Equivalent Units of Direct Materials = Direct Materials Cost per Equivalent Unit $66,000 60,000 gallons = $1.10 per gallon Direct Materials Cost per Equivalent Unit = Direct Materials

15. LO 2 Determine the Cost per Equivalent Unit Conversion Cost Conversion Cost per Equivalent Unit $17,775 59,250 gallons = Conversion Cost per Equivalent Unit $0.30 per gallon = Conversion Cost per Equivalent Unit Total Conversion Costs for the Period Total Equivalent Units of Conversion Costs =

16. Allocating Costs to Units  Product costs must be allocated to the units transferred out and the partially completed units on hand at the end of the period. LO 2 Step 4:

17. LO 2 Allocating Costs to Units The total production costs to be assigned for Frozen Delight in July are $90,000.

18. LO 2 Allocating Costs to Units The units to be assigned these costs are shown below. The costs to be assigned these units are indicated by question marks.

19. LO 2 Allocating Costs to Units Group 1: Inventory in Process on July 1 The 5,000 gallons of inventory in Group 1 were completed and transferred out to the Packaging Department in July. The cost is determined as follows:

20. LO 2 Group 2: Started and Completed Allocating Costs to Units The 57,000 units started and completed in July (Group 2) incurred all of their direct materials and conversion costs in July. The cost assigned to these 57,000 units is shown below.

21. Group 2: Started and Completed Allocating Costs to Units The total cost transferred to the Packaging Department in July of $86,475 is the sum of the beginning inventory cost and the costs of the units started and completed in July. Group 1 Cost of July 1 in-process inventory$ 6,675 Group 2 Cost of the units started and completed in July 79,800 Total costs transferred to Packaging Department in July$86,475 LO 2

22. Group 3: Inventory in Process on July 31 Allocating Costs to Units The 3,000 gallons in process on July 31 (Group 3) incurred all of their direct materials costs and 25% of their conversion costs in July for a total cost of $3,525.

23. Group 3: Inventory in Process on July 31 Allocating Costs to Units LO 2 The total manufacturing costs for Frozen Delight in July were assigned as shown below. Note that amounts now appear where question marks appeared earlier.

24. Preparing the Cost of Production Report  A cost of production report is prepared for each processing department at periodic intervals. The report summarizes the following production quantity and cost data: 1.The units for which the department is accountable and the disposition of those units 2.The production costs incurred by the department and the allocation of those costs between completed and partially completed units LO 2

25. (continued) LO 2 Preparing the Cost of Production Report

26. LO 2 Preparing the Cost of Production Report