Production Cost Calculation: A Step-by-Step Analysis
Classified in Mathematics
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This document outlines the steps to calculate production costs, including equivalent units and costs for work-in-progress (WIP) and finished goods.
Step 1 - Determine the units of product to account for (how much inventory do we need to track?) | |||||
Units in beginning WIP | 30,000 | ||||
+ Units started this period | 155,000 | ||||
= Total units to account for | 185,000 | ||||
Step 2 - Determine the number of units of product accounted for (where is the inventory at the end of the month?) | |||||
Step 2 MUST equal Step 1 | |||||
Units in beginning WIP | 30,000 | ||||
+ Units started and completed during the period | 119,000 | 149,000 finished - 30,000 started last month = 119,000 started and finished this month | |||
+ Units in ending WIP | 36,000 | 30,000 Beg WIP + 155,000 started - 149,000 finished = 36,000 not finished | |||
= Total units accounted for | 185,000 | ||||
Step 3 - Calculate Equivalent Units of Production (EUP) | Total | Direct Material | Labor + Overhead | ||
Units in beginning WIP | 30,000 | 30,000 | 30,000 | Just bring first column over | |
+ Units started and completed during the period | 119,000 | 119,000 | 119,000 | Just bring first column over | |
+ Units in ending WIP | 36,000 | 36,000 | 16,200 | ||
= EUP | 185,000 | 185,000 | 165,200 | ||
Step 4 - Determine total cost of production | |||||
Direct Material | Labor + Overhead | Total | |||
Cost of beginning WIP | 119,400 | 2,400 | 121,800 | ||
+ Costs added during period | 620,000 | 123,272 | 743,272 | ||
= Total cost of production | 739,400 | 125,672 | 865,072 | Total must equal total of the account | |
Step 5 - Calculate a cost per EUP | |||||
Direct material | Labor & Overhead | ||||
Total costs from step 4 | 739,400 | 125,672 | |||
/ EUP from step 3 | 185,000 | 165,200 | |||
3.9968 | 0.7607 | 4.7575 | |||
Step 6 - Determine the cost of ending WIP and Finished goods | |||||
Calculate cost of ending WIP: | |||||
Direct materials (36,000 from step 3 X cost 3.9968 from step 4) | 143,883.24 | ||||
Labor and Overhead (16,200 from step 3 X cost $.7607 from step 4) | 12,323.77 | ||||
Total cost of ending WIP | 156,207.01 | ||||
Calculate cost of Finished Goods: | |||||
Total cost from step 4 | 865,072.00 | ||||
- Cost of ending WIP | 156,207.01 | ||||
= Cost of finished goods | 708,864.99 |