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Production Costs 1

Production Costs

April 10, 2017

Accounting 561

Monique Smalling

Introduction

Production Costs 2

For this week’s assignment, the following scenario will be addressed. “Davis Skaros has

recently been promoted to production manager. He has just started to receive various

managerial reports, including the production cost report you prepared. It showed his department

had 2,000 equivalent units in ending inventory. His department has had a history of not keeping

enough inventory on hand to meet demand. He has come to you, very angry, and wants to know

why you credited him with only 2,000 units when he knows he had at least twice that many on

hand.” The following paper includes a memo to Mr. Skaors that explains why the production

cost report showed 2,000 units of inventory and why this was not done in error. This case study

also focuses on determining equivalent units in a production unit setting.

Memo

I would first like to thank you for your concern in regards to the 2,000 equivalent units in

ending inventory. It is very understandable with the history of your department that someone in

your position would make sure that all inventory and production is accurate. I can also assure

you that there has been no error on the cost report that was provided to you. I first would like to

bring your attention to what is meant by equivalent units of production. “An equivalent unit of

production is an indication of the amount of work done by manufacturers who have partially

completed units on hand at the end of an accounting period. ( Rehman )” This basically means

that not all ending units are completed but all units, both partially completed and fully

completed, are included in the equivalent units. For instance, let’s say the department began with

no units in inventory and it started and completed 10,000 units. It also started an additional 1,000

units that were 20% complete. The equivalent units of production that will be reported is 10,200.

This includes the 10,000 completed units plus 20% of the partially completed 1,000 units. This

may seem confusing at first but it gives us an idea of how much work is completed at the end of

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Production Costs 1 Production Costs April 10, 2017 Accounting 561 Monique Smalling Introduction Production Costs 2 For this week’s assignment, the following scenario will be addressed. “Davis Skaros has recently been promoted to production manager. He has just started to receive various managerial reports, including the production cost report you prepared. It showed his department had 2,000 equivalent units in ending inventory. His department has had a history of not keeping enough inventory on hand to meet demand. He has come to you, very angry, and wants to know why you credited him with only 2,000 units when he knows he had at least twice that many on hand.” The following paper includes a memo to Mr. Skaors that explains why the production cost report showed 2,000 units of inventory and why this was not done in error. This case study also focuses on determining equivalent units in a production unit setting. Memo I would first like to thank you for your concern in regards to the 2,000 equivalent units in ending inventory. It is very understandable with the history of your department that someone in your position would make sure that all inventory and production is ac ...
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