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
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 anlproduction business setting.
Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)
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.
Prepare 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.
Format the assignment consistent with APA guidelines.
To: Production Manager, David Skaros
From: Accounting Department
Subject: Ending Inventory
The explanation behind any misunderstanding identified in your production department arises comes the way that the amount can be measured which involves two distinctive routes,
To comprehend the debate that emerging from the generation division it is critical to take a gander at the significance of stock administration. An appropriate arranging of obtaining, taking care of inventory. A productive inventory management will help in deciding (a) what to buy (b) the amount to buy (c) from where to buy (d) where to store, and so forth.
There are clashing interests of various departmental heads over the issue of stock. The reason for stock administration is to keep the stocks such that neither there is over-loading nor under-stocking. The over-stocking will mean lessening of liquidity and keeping from other creation forms; under-stocking, then again, will bring about stoppage of work. The interests in stock ought to be kept in sensible limits. The principle goals of stock administration are operational and money related. The operational targets imply that the materials and extras ought to be accessible in adequate amount with the goal that work is not disturbed for need of stock. The money related target implies that interests in inventories ought not stay sit out of gear and least working capital ought to be secured it.
A departmental cost of generation report demonstrates all costs chargeable to a division. It is not just the hotspot for outline diary sections toward the finish of the month additionally a most helpful vehicle for displaying and discarding costs aggregated amid the month. A creation cost report appears:
1. Total unit costs exchanged to it from a first office.
2. Materials, work, and industrial facility overhead included by the office.
3. Unit cost included by the office.
4. Total and unit costs amassed to the finish of operations in the office.
5. The cost of the start and completion work in process inventories.
6. Cost exchanged to a succeeding division or to a completed merchandise storeroom.
It is standard to isolate the cost segment of the report into two sections: one demonstrating costs for which the division is responsible, including departmental and total aggregate and unit costs, the other demonstrating the aura of these expenses. An amount plan demonstrating the aggregate number of units for which a division is responsible and the manner made of these units is additionally some portion of every office’s cost of generation report. Data in this timetable, balanced for proportional creation is utilized to decide the unit costs included by a division, the costing of the completion work in process stock, and the cost to be exchanged out of the office. A cost of creation report decides occasional aggregate and unit costs. In any case, a report that would only condense the aggregate expenses of materials, work, and plant overhead and shows just the unit cost for the period would not be agreeable for controlling expenses. Add up to figures mean practically nothing; cost control requires point by point information. Hence, in many cases, the aggregate cost is separated by cost components for every division set out dependable toward the expenses acquired. Besides, definite departmental figures are required in view of the different finish phases of the work in process inventories
Equivalent units measure the work done on the physical units, expressed in terms of fully completed units. Therefore, if your ending inventory contains 4,000 units which are 50% complete, that is equivalent to having 2,000 completed units at month end. Therefore, that ending inventory could be expressed as containing 4,000 physical units or 2,000 equivalent units.