10 Sep Complete a four-part assessment in which you will prepare a production cost report, allocate overhead using estimated costs and cost drivers,

Complete a four-part assessment in which you will prepare a production cost report, allocate overhead using estimated costs and cost drivers, use cost analysis in the decision-making process, and compare the results of cost allocation processes.

 

Introduction

In the operation of a process cost accounting system, many manufacturing companies will uniformly apply materials, labor, and overhead, throughout the production process period. This is not necessarily true for other product and service companies whose production process requires adding materials at different points in the process. For these companies, cost calculation for each department in the production process is slightly more complex.

 

In some industries that use a manufacturing process operation, some units will always be lost due to shrinkage, spillage, or defects. These normal losses are expected as a necessary cost of producing high-quality products. They must be accounted for in the cost-of-production summary report. It is also possible—particularly when the process involves a liquid product— that units will be gained during production. This situation must also be accounted for and summarized in the production summary report.

 

Before beginning this assessment, take time to review the following topics:

 

Production cost report.

Activity-based costing.

Predetermined overhead allocation rates.

Quality improvement.

Allocation of service department costs.

Complete a four-part assessment in which you prepare a production cost report, allocate overhead using estimated costs and cost drivers, use cost analysis in the decision-making process, and compare the results of cost allocation processes.

 

Preparation

Use the Assessment 3 Template [XLSX] to complete the following four parts. Each part is a different tab in the template.

 

Part 1: In the template, prepare a production cost report using the FIFO method. Show all calculations and explain briefly.

Part 2: Compute overhead rate for each cost driver and production costs for each product, and compare to the consultant’s recommendations for cost drivers to explain the discrepancy between the two different approaches to product costing to management. Show all calculations.

Part 3: Compute and explain the rationale for using or not using the proposed new material based on the associated costs. Give other factors that should also be taken into consideration for this decision. Show all calculations.

Part 4: Allocate the cost to the service department using all three methods: direct, step, and reciprocal. Then comment on your findings in a paragraph. Show all calculations.

Instructions

Assessment 3 Part 1: Prepare a Production Cost Report: FIFO Method

 In the template, prepare a production cost report using the FIFO method. Show all calculations and explain briefly.

 

Part 1 Scenario

Lamar, Inc. provides the following information for one of its department’s operations for May (no new material is added in Department T):

 

Lamar, Inc.: WIP Inventory: Department T

Item

 

Value

 

Beginning Inventory (16,500 units, 60% complete with respect to Department T costs)

 

 

 

Transferred-in Costs (from Department S)

 

$127,600

 

Department T Conversion Costs

 

$58,465

 

Current Work (38,500 units started)

 

 

 

Prior Department Costs

 

$308,000