To: Production Manager, David Skaros
From: Accounting Department
Date:
Subject: Ending Inventory
The main aim of this memo is to clear out any misunderstanding in your production section. It is an explanation of the reason why your ending inventory had only 2000 equivalent units. The report shows the two distinct routes of measuring the mentioned amount.
The production cost report brings out the facts regarding the total expenses of producing a product. It takes into account both operating and raw material costs. It is crucial to take a look at the importance of stock management to understand the dispute arising from the generation division. An appropriate arrangement of the inventory is therefore obtained and safeguarded. The productive inventory executives assist in deciding on four major factors; what to purchase, the quantity to buy, where to purchase from and where to store the purchased commodity. The issue of the stock has resulted in conflicts within several departmental heads. The stock admin plays a significant role in the management of inventory. The team sees to it that they evade issues such as over-loading or under-stocking. Both scenarios have a substantial impact on the organization. Under-stocking leads to the work stoppage, while over-stocking leads to a reduction on liquid assets meaning the company holds back from other creation practices. The objectives of the stock board are both money-linked and operational. The money related goals denote that the working capital must be secured while the inventories should function properly. On the other hand, operational targets suggest material accessibility should be in sufficient quantities ensuring work is not interrupted due to the requirement of stock.
Delegate your assignment to our experts and they will do the rest.
There is a clear stipulation on all- inclusive charges to a division in the department's production cost report. It is significant in outlining account sections towards the end of the month. Additionally, it assists in revealing and removing costs summed up within the month. The following appears in the report:
1. Unit and total expenses collected to the completion of tasks in the office.
2. Work, material and industrial facility running costs counted in by the office.
3. Process inventories budget of starting and completing work.
4. Unit charge incorporated by the office.
5. Total fixed and variable costs in production switched from a first office.
6. Charges traded to a subsequent division or a finalized stockroom.
Detaching the cost fragment of the report into dual sections is regular. One segment takes into consideration the expenses the division is responsible for which includes total unit and aggregate costs as well as departmental. The other portion takes account of the aura of these expenditures. An additional piece of every office cost report is a quantity blueprint indicating the cumulative amount of elements a specific entity is accountable for and the mode of making these units. The data in this plan which is well-adjusted for comparative creation plays a role in three significant contexts. These are to choose the cost of work completed in-process stock, the traded expenses out of the office and a division’s variable and fixed budget of the production. A report that only incorporates the period’s unit costs, the total expenditures of plant overhead, work and material does not meet the standards for governing expenses. Controlling cost calls for point by point facts and adding up data means nothing. It explains why in many cases splitting the total costs is through price constituents for each division set forth reliably in the direction of the values attained. Also, to view the distinct completed phases of the work in course inventories, assertive departmental statistics are mandatory.
The measurement of the labor done on the physical components is by equivalent units and demonstrated regarding entirely finalized units. For that reason, if your completion inventory comprises 10000 units which are half complete at the end of the month, those are equivalent to 5000 units. Records show that your production department has a habit of not keeping sufficient inventories available to meet the requirements. The report explains why despite your claim to possess 4000 units, I have credited your department with only 2000 which are the fully completed units. Therefore, your production cost report indicates only 2000 equivalent units which also translate to 4000 physical units. I believe you now understand why my statement is accurate as I mentioned before.
References
Shepherd, R. W. (2015). Theory of cost and production functions . Princeton University Press.
