Production Costs Grading Guide

Production Costs Grading Guideacc561 Version 73production Costs Gradi

The assignment requires explaining to Mr. Skaros why his production cost report showed only 2,000 equivalent units in ending inventory and clearly justifying why the student’s report is accurate. The memo should be a maximum of 700 words. Additionally, the paper must include tables, graphs, headings, a title page, and a reference page, all formatted according to APA guidelines. Proper in-text citations and a references section are essential. The writing should be well-organized with logical transitions, complete sentences, and free of grammar and punctuation errors. The assignment relates to Chapter 6, Problem 2, involving a comparative analysis between Amazon.com, Inc. and Wal-Mart Stores, Inc., focusing on inventory turnover and days in inventory.

Paper For Above instruction

In the context of managerial accounting, understanding the calculation and interpretation of equivalent units is crucial for accurately assessing production costs and inventory valuation. The scenario presented by Mr. Skaros involves a production cost report that indicates only 2,000 equivalent units in ending inventory. To clarify this, it is essential to understand the underlying processes of cost allocation in a production environment, particularly in a process costing system. This memo aims to explain the reasons behind this figure and justify the accuracy of the report.

Understanding Equivalent Units and Their Calculation

Equivalent units represent the number of complete units that could have been produced given the amount of work performed during a period, expressed in terms of fully completed units. They are a vital component in process costing, enabling proper allocation of costs between completed and in-progress units (Weygandt, Kimmel, & Kieso, 2018). Typically, they are calculated by combining the units transferred out with the equivalent units in ending inventory, which depend on the stage of completion of the work-in-process (WIP) inventory.

Factors Contributing to the 2,000 Equivalent Units

The report showing only 2,000 equivalent units in ending inventory suggests several possible reasons, primarily related to the stage of completion of WIP and the method used for calculating equivalent units. If, for example, the WIP inventory is 50% complete in terms of labor and overhead but only 20% complete in terms of materials, the equivalent units for each cost component will vary accordingly (Hansen & Mowen, 2018). This specific percentage of completion determines the count of equivalent units in inventory.

Accuracy and Validity of the Report

The report is considered accurate if it appropriately reflects the actual stage of completion of the WIP, the correct cost flow assumptions, and the proper application of the weighted-average or FIFO method. For example, if the company uses the weighted-average method, the equivalent units in ending inventory incorporate all costs incurred during the period, regardless of when they were added. Conversely, if FIFO is employed, the calculation isolates the costs of beginning inventory from current period costs, affecting the equivalent units count (Garrison, Noreen, & Brewer, 2018).

Implications for Cost Management and Decision-Making

Understanding why the report shows 2,000 equivalent units helps decision-makers accurately allocate costs, price products, and manage inventory levels. Incorrect interpretation could lead to over- or under-costing products, affecting profitability. Mr. Skaros's report aligns with the principles of process costing by accurately reflecting the work done on partially completed units, based on the degree of completion and applicable costs.

Conclusion

In conclusion, the 2,000 equivalent units in ending inventory are a reflection of the actual work-in-process at that point in the production cycle, considering the percentage of completion and the chosen costing method. The report’s calculation is valid, provided it correctly applies the relevant methods and assumptions, and serves as a reliable basis for assessing production costs and making informed managerial decisions.

References

• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting (16th ed.). McGraw-Hill Education.
• Hansen, D. R., & Mowen, M. M. (2018). Cost Management: A Strategic Emphasis (8th ed.). Cengage Learning.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Managerial Accounting: Tools for Business Decision Making (8th ed.). Wiley.
• Hilton, R. W., & Platt, D. (2018). Managerial Accounting: Creating Value in a Dynamic Business Environment (11th ed.). McGraw-Hill Education.
• Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.
• Anthony, R., & Govindarajan, V. (2019). Management Control Systems (13th ed.). McGraw-Hill Education.
• Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting (3rd ed.). Pearson.
• Horngren, C. T., Datar, S. M., & Rajan, M. (2018). Cost Accounting: A Managerial Emphasis (16th ed.). Pearson.
• Lee, T. A. (2020). Fundamentals of Cost Accounting. Routledge.
• Bailey, K., & Sorensen, P. (2019). Cost Accounting Principles and Applications. Wiley.