Preparing a Production Cost Report

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  • 0:06 What Is a Production…
  • 0:33 How Many Units?
  • 1:07 Counting Units
  • 2:07 How Much Was Spent?
  • 3:23 Did We Spend It?
  • 4:03 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.

A Production Cost Report, sometimes called a Cost of Production Report, allows accountants to follow the flow of raw materials through a company's departments. In this lesson, we will learn how to prepare one.

What Is a Production Cost Report?

A production cost report allows for a company to keep track of spending and materials as they pass in and out of a given department. Think about it like this. Chances are you have a rather expansive budget that indicates how money moves in and out of your company. A production cost report does this on a departmental level. What's more, a production cost report also keeps track of any goods. This lesson teaches the four parts of a production cost report.

How Many Units?

The first step is to keep track of how many units have moved through a department. This is often called something like units to account for or summary of physical units. Imagine that a business is the manufacturing arm of a widget company. It receives ingots of iron and turns them into widgets. To find the total units to account for, add the number of ingots of iron on hand at the beginning of the month to those that have been ordered. For example, if the company ordered 1,000 ingots and had 400 on hand, that would give them 1,400 ingots of iron.

Counting Units

The second step is counting the units. Now that it's known that there are 1,400 ingots of iron, the company needs to see what happened to them. This is often called the units accounted for or summary of costs to be accounted for. The company is making sure that those 1,400 ingots went to use. Say that 1,200 of them were converted into widgets, leaving 200 ingots still on hand. The company would report that it still had 200 ingots on hand but that 1,200 of them had been turned into widgets.

Now say that instead of a perfect 1,200 being complete and 200 being left, 1,000 ingots had been completely turned into widgets, but the remaining 400 were halfway there. How would you do that? In this case, use an equivalent unit by which you calculate how far away those units are from being complete. Since they're halfway there, you could say that half of the 400 ingots have been converted to widgets while the other half has not.

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