Production Cost Calculation: A Step-by-Step Analysis

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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 WIP30,000
+ Units started this period155,000
= Total units to account for185,000
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 WIP30,000
+ Units started and completed during the period119,000149,000 finished - 30,000 started last month = 119,000 started and finished this month
+ Units in ending WIP36,00030,000 Beg WIP + 155,000 started - 149,000 finished = 36,000 not finished
= Total units accounted for185,000
Step 3 - Calculate Equivalent Units of Production (EUP)TotalDirect MaterialLabor + Overhead
Units in beginning WIP30,00030,00030,000Just bring first column over
+ Units started and completed during the period119,000119,000119,000Just bring first column over
+ Units in ending WIP36,00036,00016,200
= EUP185,000185,000165,200
Step 4 - Determine total cost of production
Direct MaterialLabor + OverheadTotal
Cost of beginning WIP119,4002,400121,800
+ Costs added during period620,000123,272743,272
= Total cost of production739,400125,672865,072Total must equal total of the account
Step 5 - Calculate a cost per EUP
Direct materialLabor & Overhead
Total costs from step 4739,400125,672
/ EUP from step 3185,000165,200
3.99680.76074.7575
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 WIP156,207.01
Calculate cost of Finished Goods:
Total cost from step 4865,072.00
- Cost of ending WIP156,207.01
= Cost of finished goods708,864.99

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