Cost of Production Report - FIFO Costing ( Module on Cost Accounting ) PDF

Preview

Summary

Cost of Production Report - FIFO Costing...

Description

Chapter 11 - Cost of Production Report: FIFO Costing According to Pedro P. Guerrero, the use of FIFO method of accounting for work in process inventories has the following advantages: a. 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.¹ b. 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 units started during the period are computed separately.¹ c. Major changes in costs can be monitored easily for control purposes.¹ Applying the FIFO Cost Method – Star Paper Company Under the FIFO method, the costs of the beginning work in process inventory are kept separate and assigned only to the units in the beginning work in process. Units that were in the beginning work in process inventory are presented separately from the units that are started and completed in the current month. The units transferred out of the department during the month are composed of the beginning work in process and the units started and finished in the current month.¹ Comprehensive Illustration Cutting Department The cost and production data of the Cutting Department, the first department of Star Paper Company, for February 200X, the second month of operations are presented below: Cost Data The Work In Process – Cutting Department account on February 28, 200X, has a balance of P351,294 before transfer out, composed of the following costs: Beginning Work in Process: Materials P 22,560 Labor 13,536 Overhead 28,952 Balance, January 31 P 65,048 Current Month Costs Materials P 69,944 Labor 82,416 Overhead 133,886 Total February costs 286,246 Balance, February 28 P 351,294

¹Pedro P. Guerrero, Cost Accounting – Principles and Procedural Applications, 2014-2015 Edition

Production Data The monthly production report showing the production data of the Cutting Department for February is presented below: Cutting Department Monthly Production Report – FIFO Method February 200X Quantity: Work in Process – Beginning Started in Process Transferred Out to Next Department: From Work in Process – beginning Started and Completed – Current Month Total Transferred Out to Next Department Work in Process – Ending Stage of Completion of Work in Process

3,760 11,160 3,760 5,840 9,600 5,320 Beginning 100% 40% 55%

Materials Labor Overhead

Ending 100% 40% 55%

Equivalent Units of Production Under the FIFO method, the costs of the units in the beginning WIP inventory should be separated from the costs of the new units started in the current period. The equivalent production is computed so that the final figure relates only to the work done in the current month. The computation of the equivalent production is presented below: Cutting Department Equivalent Production Computations – FIFO Month of February 200X Materials Transferred Out to Next Department Completion of Beginning WIP (3,760 x 0%) Started and Completed Work in Process – Ending ( 5,320 x 100% ) Equivalent Units for Materials Labor Transferred Out to Next Department Completion of Beginning WIP ( 3,760 x 60% ) Started and Completed Work in Process – Ending ( 5,320 x 40% ) Equivalent Units for Labor Overhead Transferred Out to Next Department Completion of Beginning WIP (3,760 x 45%) Started and Completed Work in Process – Ending ( 5,320 x 55%) Equivalent Units for Overhead

0 5,840 5,320 11,160

2,256 5,840 2,128 10,224

1,692 5,840 2,926 10,458

Cost of Production Report – Cutting Department The completed cost of production report under the FIFO is presented below. Cutting Department Cost of Production Report Month of February 200X Quantity Schedule a. Quantity to Be Accounted For: Work in Process – Beginning Started – Current Month Total to Be Accounted For b. Quantity Accounted For: Transferred Out to Next Department From Beginning WIP Started and Completed Work in Process – Ending Total Accounted For

Units 3,760 11,160 14,920

3,760 5,840

9,600 5,320 14,920

Equivalent Unit Cost Schedule Total Cost Units Costs c. Costs to be Accounted For: Work in Process – Beginning P 65,048 Costs Incurred in Current Month Costs Incurred in this Department Materials P 69,944 / 11,160 = P 6.26738 Labor 82,416 / 10,224 = 8.06103 Overhead 133,886 / 10,458 = 12.80226 Total Costs in this Dept. P286,246 P 27.13067 Total Costs to be Accounted For P351,294 d. Cost Accounted For: Transferred Out to Next Dept. From Beginning WIP inventory P 65,048 Current Month Costs: Materials 0 = 0 x P6.26738 Labor 18,186 = 2,256 x 8.06103 Overhead 21,661 = 1,692 x 12.80226 Costs of Completed Beg. WIP P104,895 / 3,760 = P27.897.61 Started and Completed 158,443 = 5,840 x 27.13067 Total Costs Transferred Out P263,338 / 9,600 = 27.43104 Work in Process – Ending Costs in this Department: Materials P 33,343 = 5,320 x 6.26738 Labor 17,154 = 2,128 x 8.06103 Overhead 37,459 = 2,926 x 12.80226 Total 87,956 Total Costs Accounted For P351,294

Assembly Department The following cost and production data for the Assembly Department, the second department of Star Paper Company for February 200X will be used to illustrate the FIFO method as it applies to units moving from department to department. Cost Data The balance of the Work in Process – Assembly Department of P471,609 on February 28 before transfer out to the next department is composed of the following costs: Beginning Work in Process: Costs Transferred In from Prior Dept. Cost in Current Department: Materials Labor Overhead Balance, January 31 Current Month Costs Transferred In from Prior Dept. Cost in Current Department: Materials Labor Overhead Balance, February 28

P 28,130 1,455 5,529 4,656 P39,770 P263,338 23,128 70,638 74,735

431,839 P471,609

Production Data Assembly Department Monthly Production Report – FIFO Method February 200X Quantity: Work in Process – Beginning Started in Process – Current Month Transferred Out to Next Department: From Work in Process – Beginning Started and Completed Total Transferred Out to Next Department Work in Process – Ending Stage of Completion Transferred In Cost Materials Labor Overhead

970 9,600 970 8,500 9,470 1,100 Beginning 100% 60% 60% 60%

Ending 100% 55% 55% 55%

Equivalent Units of Production The computations of the equivalent units of production under the FIFO method are shown below: Assembly Department Equivalent Production Computations – FIFO Month of February 200X Transferred In Cost From Prior Department: Transferred Out to Next Department: Completion of Beginning WIP (970 x 0%) Started and Completed Work in Process – Ending (1,100 x 100%) Equivalent Units for Transferred In Costs Materials Transferred Out to Next Department: Completion of Beginning WIP (970 x 40%) Started and Completed Work in Process – Ending (1,100 x 55%) Equivalent Units for Materials Labor Transferred Out to Next Department Completion of Beginning WIP ( 970 x 40% ) Started and Completed Work in Process – Ending ( 1,100 x 55% ) Equivalent Units for Labor Overhead Transferred Out to Next Department Completion of Beginning WIP ( 970 x 40% ) Started and Completed Work in Process – Ending ( 1,100 x 55% ) Equivalent Units for Overhead

0 8,500 1,100 9,600

388 8,500 605 9,493

388 8,500 605 9,493

388 8,500 605 9,493

Cost of Production Report The cost of production report under the FIFO method for the month of February for the Assembly Department is shown below.

Assembly Department Cost of Production Report – FIFO Month of February 200X Quantity Schedule a. Quantity to Be Accounted For: Work in Process – Beginning Started/Transferred In Total to Be accounted For b. Quantity Accounted For: Transferred Out to Next Dept. From Beginning WIP Started and Completed Work In Process – Ending Total Accounted For

Units 970 9,600 10,570

970 8,500

9,470 1,100 10,570

Equivalent Unit Cost Schedule Total Cost Units Costs c. Costs to Be Accounted For: Work in Process – Beginning P39,770 Costs Incurred This Month Transferred In Cost from Prior Dept. 263,338 / 9,600 = P27.43104 Costs Added this Dept, Materials 23,128 / 9,493 = P 2.43632 Labor 70,638 / 9,493 = 7.44106 Overhead 74,735 / 9,493 = 7.87264 Total Costs Added 168,501 P 17.75002 Total Costs this Month 431,839 P 45.18106 Total Costs to Be Accounted for P471,609 d. Costs Accounted For: Transferred Out to Next Dept. From Beginning WIP P 39,770 Costs Added this Month: Materials 945 = 388 x 2.43632 Labor 2,887 = 388 x 7.44106 Overhead 3,055 = 388 x 7.87264 Total Costs of Completed BWIP P 46,657 / 970 = P 48.10 Started and Completed 384,039 = 8,500 x 45.18106 Total Costs of Units Transferred Out P430.696 / 9,470 = 45.48004 Work in Process – Ending Transferred In Costs fr. Prior Dept. 30,174 = 1,100 x 27.43104 Costs Incurred this Dept. Materials 1,474 = 605 x 2.43632 Labor 4,502 = 605 x 7.44106 Overhead 4,763 = 605 x 7.87264 Total Work in Process 40,913 Total Costs Accounted For P471,609

Packaging Department The following are the cost data, monthly production report, and equivalent production computations for the month of February for the Packaging Department. Cost Data Beginning Work in Process Costs Transferred In From Prior Department Costs in this Department: Materials Labor Overhead Balance, January 31 Costs this Month Costs Transferred in From Prior Department Costs in this Department Materials Labor Overhead Total Costs this Month Balance, February 28 Monthly Production Report – FIFO Quantity Work in Process – Beginning Started in Production/Transferred In Transferred Out to Finished Goods From Beginning Work in Process Started and Completed Work in Process – Ending Stage of Completion Transferred In Cost Materials Labor Overhead

P133,280 0 2,230 1,020 P136,530 P430,699 2,560 20,480 16,885 470,624 P607,154

2,720 9,470 2,720 3,650

Beginning 100% 0% 20% 15%

6,370 5,820 Ending 100% 0% 20% 15%

Equivalent Production Computations – FIFO Transferred In Costs From Prior Department Transferred Out to Finished Goods: Completion of Beginning Work in Process ( 2,720 x 0%) Started and Completed Work in Process – Ending ( 5,820 s 100% ) Equivalent Units for Transferred in Costs from Prior Department Materials Transferred Out to Finished Goods: Completion of Beginning Work in Process ( 2,720 x 100% ) Started and Completed Work in Process – Ending ( 5,829 x 0%) Equivalent Units for Materials Labor Transferred Out to Finished Goods: Completion of Beginning Work in Process (2,720 x 80% ) Started and Completed Work in Process – Ending ( 5,820 x 20% ) Equivalent Units for Labor Overhead Transferred Out to Finished Goods: Completion of Beginning Work in Process ( 2,720 x 85% ) Started and Completed Work in Process – Ending ( 5,820 x 15% ) Equivalent Units for Overhead

Cost of Production Report The cost of production report is shown on the next page.

0 3,650 5,820 9,470

2,720 3,650 0 6,370

2,176 3,650 1,164 6,990

2,312 3,650 873 6,835

Packaging Department Cost of Production Report – FIFO Month of February 200X Quantity Schedule a. Quantity to be Accounted For: Work in Process – Beginning Started / Transferred In Total to Be Accounted For b. Quantity Accounted For: Transferred Out to Finished Goods From Beginning WIP Started and Completed Work in Process – Ending Total Accounted For

Units 2,720 9,470 12,190

2,720 3,650

6,370 5,820 12,190 Equivalent Units

Cost Schedule Total Cost c. Costs to Be Accounted For: Work in Process – Beginning P 136,530 Costs Incurred this Month Transferred In Costs from Prior Dept. P430,699 / 9,470 Costs Added this Dept. Materials 2,560 / 6,370 Labor 20,480 / 6,990 Overhead 16,885 / 6,835 Total Costs Added P 39,925 Total Costs this Month P 470,625 Total Costs to be Accounted For P 607,154 d. Cost Accounted For: Transferred Out to Finished Goods From Beginning Inventory P 136,530 Costs Added this Month Materials 1,093 = 2,720 x Labor 6,375 = 2,176 x Overhead 5,712 = 2,312 x Total Costs of Completed BWIP P 149,710 / 2,720 = Started and completed 187,181 = 3,650 x Total Costs of Units Transferred Out P336,891 / 6,370 = Work in Process – Ending Transferred In Costs fr. Prior Dept. P264,696 = 5,820 x Costs Incurred this Dept. Materials 0 = 0 x Labor 3,410 = 1,164 x Overhead 2,157 = 873 x Total WIP P270,263 Total Costs Accounted For P 607,154

Unit Costs

=

P 45.48035

= = =

0.40188 2.92990 2.47037 P 5.80215 P 51.28250

P 0.40188 2.92990 2.47037 P 55.04044 51.28250 52.88712 45.48035 P0.40188 2.92990 2.47037

SOURCE AND REFERENCE: Pedro P. Guerrero, Cost Accounting – Principles and Procedural Applications, 2014-2015 Edition...