Production Cost Analysis Guide
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ScribdTranslationsProduction Cost Analysis Guide
Translated by
ScribdTranslationsProduction Cost Report - It is an analysis of the activity of the department or center of
costs for the period. All costs attributable to a department or cost center are
present according to the elements of the cost center. A report on the production cost for each
department can prepare by following a four-step approach. Each step represents a
The separate plan and the four plans together constitute a report on production costs.
Step 1: Account for the physical flow of units (quantity plan)
Step 2: Calculate the equivalent production units (equivalent production plan)
Step 3: Accumulate costs, totals, and per unit, that will be accounted for by department (plan
of costs to be accounted for.
Step 4: Assign the accumulated costs to the units transferred or still in process (plan of
accounted costs). These plans are ILLUSTRATED in the company's production reports
Rey, which produces ELVIS dolls in two departments: A is the molding department that
produce the body, the guitar, the glasses, the clothes and thepackagingfor the dolls. B is the department.
assembly. This company uses a constant flow manufacturing process (that is, a
continuous production process, work orders are not required.
3.1. Record of operations in a process costing system.
When we refer to cost accounting applications by processes, we are talking about the
accounting for companies that manufacture in series; includes financial operations. Thus, as
the ones related to costs, this means applying the accounting cycle in the industrial company, under
the guidelines of the International Financial Reporting Standards and the methodologies of
costs applicable according to the characteristics of the production and the company in particular. In this
This week we will focus on the recording of operations in books, records, reports, and others.
documents, according to the transactions to be recorded, it is necessary to indicate some guidelines:
Accounting requires the chronological and systematic recording of each of the operations that
are presented in companies within a period, such as: purchases of goods or services,
payment to the staff that works, sales, investments, returns to suppliers, returns from the
clients, delivery of materials for production, cost allocation, transfers of
production from one department to another, depreciations, adjustments, among others. Each operation
generally requires more than one record simultaneously, for example:
Opening entry: record of the accounting entry in the general journal, posting, opening of
the Kardex of finished products and raw materials, in case there are units in
inventory at the start of operations (initial inventory).
Purchase of raw materials: registration in the kardex, recording the accounting entry in the journal
general, majorization.
Delivery of raw materials for production: registration in the kardex, registration in the requisitions
(unit cost and total according to kardex), registration in the Used Material Report of the department
that requested the material, recording of the accounting entry in the general journal, account balancing.
Payment for drinking water: registration of the accounting entry in the general journal, posting, registration in
the Report on indirect costs of each department according to distribution percentage.
Returns of raw materials to suppliers: record in the kardex (outgoing column)
record of the accounting entry in the general journal, posting.
Returns of raw materials from the production departments to the warehouse: record
in the kardex (re-entry of the units), record in the report of material used of the
department that returns the material (with a negative sign), accounting entry record in the
general diary, majorization.
Purchase of small spare parts for machinery: recording the journal entry in the ledger
general, majorization, registration in the indirect costs report of the department to which
belongs to the machinery
Assignment of labor costs to production: recording the journal entry in the
general diary, majorization. This operation is performed at the end of the period for the costs of the
productive departments, according to payroll distribution table.
Allocation of indirect costs to production: recording the journal entry in the ledger
General, marginalization. This operation is performed at the end of the period based on the total costs.
indirect costs accumulated in the indirect cost reports.