Definition and Explanation of Cost of Production Report
Cost of Production Report (CPR):
Definition and Explanation of Cost of Production Report (CPR):
A departmental cost of production report (CPR) shows all costs chargeable to a department. It is not only the source for summary journal entries at the end of the month but also a most convenient vehicle for presenting and disposing of costs accumulated during the month. A cost of production report shows:
- Total unit costs transferred to it from a preceding department.
- Materials, labor, and factory overhead added by the department.
- Unit cost added by the department.
- Total and unit costs accumulated to the end of operations in the department.
- The cost of the beginning and ending work in process inventories.
- Cost transferred to a succeeding department or to a finished goods storeroom.
It is customary to divide the cost section of the report into two parts: one showing costs for which the department is accountable, including departmental and cumulative total and unit costs, the other showing the disposition of these costs. A quantity schedule showing the total number of units for which a department is accountable and the disposition made of these units is also part of each department's cost of production report. Information in this schedule, adjusted for equivalent production is used to determine the unit costs added by a department, the costing of the ending work in process inventory, and the cost to be transferred out of the department.
A cost of production report determines periodic total and unit costs. However, a report that would merely summarize the total costs of materials, labor, and factory overhead and shows only the unit cost for the period would not be satisfactory for controlling costs. Total figures mean very little; cost control requires detailed data. Therefore, in most instances, the total cost is broken down by cost elements for each department head responsible for the costs incurred. Furthermore, detailed departmental figures are needed because of the various completion stages of the work in process inventories.
Either in the cost of production report itself or in the supporting schedules, each item of material used by a department is listed; every labor operation is shown separately; factory overhead components are noted individually; and a unit cost is derived for each item. To condense the illustrated cost of production reports, only total materials, labor, and factory overhead charged to departments are considered; and unit costs are computed only for each cost element rather than for each item.
The reports of The Clonex Corporation, which manufactures one product in three producing departments (Blending, Testing, and Terminal), are used to illustrate the details involved in the preparation of cost of production reports.