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Chapter 18: Q6TI (page 987)

Describe some ways managers use production cost reports to make business decisions.

Short Answer

Expert verified

Managers use production cost reports to make the business decisions in such ways:

  1. Controlling cost
  2. Evaluating performance
  3. Pricing products
  4. Identifying the most profitable products
  5. Preparing the financial statements.

Step by step solution

01

Meaning of Production Cost Report

A production cost report is prepared to show the total cost of manufacturing the products. It is prepared by the companies using the process costing system for determining the cost of the products.

02

Controlling cost

The company managers prepare the production cost report to identify the ways to reduce the cost. From the production cost report, the managers may decide whether the company needs to change the supplier to reduce the cost of material or is required to change the composition of raw material. Management can use the production cost report to control the labor cost incurred.

03

Evaluating performance

Managers are rewarded based on how well they meet the company鈥檚 budget. By preparing the production cost report, managers compare the actual direct material cost and the conversion cost with the expected cost.

04

Pricing products

A production cost report helps in deciding the sale price of the product. It is so because the report shows the cost incurred in manufacturing the product. The sale price is high enough to cover manufacturing, selling, and administrative costs.

05

Identifying the most profitable products

The sales price and the cost data may help the company鈥檚 managementto find out the most profitable product.

06

Preparing the financial statements

Management uses the production cost report to prepare the company's financial statements. It provides the inventory data for the balance sheet and the cost of goods sold for the income statement.

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Most popular questions from this chapter

Question: Cadwell manufactures cell phones. The conversion costs to produce cell phones for November are added evenly throughout the process in the Assembly Department. The company uses the weighted-average method. For each of the following separate assumptions, calculate the equivalent units of production for conversion costs in the ending Work-in-Process Inventory for the Assembly Department:

1. 12,000 cell phones were 60% complete

2. 21,000 cell phones were 40% complete

Preparing a production cost report, second department, withbeginning WIP and transferred in costs; journal entries; FIFO method Work Problem P18-40B using the FIFO method. The Mixing Department beginningwork in process of 400 units is 80% complete as to both direct materials and conversion costs. Round equivalent unit costs to four decimal places. Round all other costs to the nearest dollar.

Question: The Mixing Department of Complete Foods had 62,000 units to account for in October. Of the 62,000 units, 38,000 units were completed and transferred to the next department, and 24,000 units were 20% complete. All of the materials are added at the beginning of the process. Conversion costs are added evenly throughout the mixing process and the company uses the weighted-average method.

Compute the total equivalent units of production for direct materials and

conversion costs for October.

Match the following terms to their definitions.

1. Direct labor plus manufacturing

Overhead

a. Expresses partially completed units in terms of fully completed units

2. Prepared by department for EUP, production costs, and assignment of costs

b. Used by companies that manufacture

homogenous products

3. Equivalent units of production

c. Previous costs brought into later

process

4. Process costing system

d. Conversion costs

5. Transferred in costs

e. Combines prior period costs with current period costs

6. Weighted-average method

f. Production cost report

Question: Identify each costing system characteristic as job order costing or process costing.

a. One Work-in-Process Inventory account

b. Production cost reports

c. Cost accumulated by process

d. Job cost sheets

e. Manufactures homogenous products through a series of uniform steps

f. Multiple Work-in-Process Inventory accounts

g. Costs transferred at end of period

h. Manufactures batches of unique products or provides specialized services
See all solutions

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