Purpose Of Assignment And Materials Covered This Week 171400

Purpose Of Assignmentthe Materials Covered This Week

Assignment Contentpurpose Of Assignmentthe Materials Covered This Week

Assignment Contentpurpose Of Assignmentthe Materials Covered This Week

Assignment Content Purpose of Assignment The materials covered this week distinguish between the different costing methods and provides needed tools for decision making. This case study focuses on determining equivalent units in a production business setting. Resources 1. Generally Accepted Accounting Principles (GAAP) 2. U.S.

Securities and Exchange Committee (SEC) 3. Attached Grading Guide Assignment Steps Scenario: 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. Create a maximum 700-word informal memo and explain to Mr. Skaros why his production cost report showed only 2,000 equivalent units in ending inventory. Using a professional tone, explain to him clearly why your report is accurate. Expectations: 1.

Meet Content and Writing expectations in attached Grading Guide 2. Format in APA format

Paper For Above instruction

The scenario involving Davis Skaros highlights a common point of confusion in cost accounting: the concept of equivalent units and how they are calculated in production reports. As new production managers often assume that physical inventory equals reported equivalent units, it is crucial to clarify how production cost reports interpret and measure inventory in terms of work in progress and completed units.

Equivalent units are a key metric used in process costing systems to allocate costs between completed production and ending inventory. They represent the number of fully completed units that could be obtained from the partially completed units in inventory based on the level of completion. This measure is essential because it allows managers to apportion costs accurately across periods, especially when production involves multiple stages of completion.

In Davis Skaros’s case, the production cost report showed only 2,000 equivalent units in ending inventory because the report’s measurement reflects the units' degree of completion, not merely the physical count of units on hand. If the units in ending inventory are only partially complete, the equivalent units will be less than the actual physical units held. For example, if 2,000 units are 50% complete, the equivalent units would be 1,000, not 2,000. Conversely, if they are 100% complete, then the equivalent units will match the physical units. The key is that equivalent units are a measure of completion—an accounting construct—not just physical stock.

Furthermore, the calculation of equivalent units depends on the stage of production. If units are in process at different stages (e.g., some are 25% complete, others 75%), the weighted average method or the FIFO method can be applied to compute total equivalent units for the ending inventory. This varies based on the chosen method, but both serve the purpose of providing a consistent basis for costing.

It’s also important to understand that the production cost report’s focus is on the costs related to work done, not merely the physical count of items. When costs are assigned, they are distributed based on the degree of completion, which explains why the equivalent units might be significantly less than total units on hand if many units are still in process.

In summary, the report’s crediting of only 2,000 equivalent units in ending inventory aligns with standard process costing methodologies. It reflects the units’ stage of completion rather than physical quantity. The apparent discrepancy with physical stock is due to this distinction: physical units tally the total items, while equivalent units measure the completed portion of these items based on their progress. The accuracy of the report stems from adherence to accepted accounting principles, ensuring that costs are properly allocated in accordance with the percentage of completion.

Therefore, the 2,000 equivalent units figure is correct given the data and methodology used. It provides a precise measure to allocate costs in production, supporting effective managerial decision-making, and reflects the true economic activity within the period, not just raw inventory counts. As a manager, understanding this distinction is vital for interpreting cost reports accurately and making informed operational choices.

References

• Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.
• Hilton, R. W., & Platt, D. E. (2017). Managerial Accounting: Creating Value in a Dynamic Business Environment (11th ed.). McGraw-Hill Education.
• Horngren, C. T., Datar, S. M., & Rajan, M. (2015). Cost Accounting: A Managerial Emphasis (15th ed.). Pearson Education.
• Kaplan, R. S., & Cooper, R. (1998). Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Strategic Management. Harvard Business School Press.
• Needles, B. E., & Powers, M. (2018). Financial and Managerial Accounting (12th ed.). Cengage Learning.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Managerial Accounting: Tools for Business Decision Making (8th ed.). Wiley.
• Banker, R. D., & Cheng, Q. (2006). Costing, activity-based costing, and customer profitability: A review. Journal of Accounting & Organizational Change, 2(2), 168-185.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting (16th ed.). McGraw-Hill Education.
• Anthony, R. N., & Govindarajan, V. (2007). Management Control Systems (12th ed.). McGraw-Hill Education.
• Seifert, B., & Kent, J. (2019). Process Costing and Equivalent Units: An Overview. Journal of Business & Accounting, 45(3), 123-137.