## Production Report – Subsequent Department – Weighted Average

### Learning Outcomes

• Prepare a production cost report for a second or subsequent stage of a multi-step process using the weighted-average method

Once the mixing department is done converting direct materials (flour and butter) and indirect materials (salt and sugar) into raw shells using direct labor, indirect labor, and other factory overhead, the materials are transferred out into the next stage—in this case, baking. For purposes of this example, we’re going to combine the baking and packaging departments into one cost center.

Before we examine subsequent departments, let’s review the Production Cost Report from the first stage of production—the mixing department for the month of January:

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Take note of the following:

• Units transferred out = 2,250. They were transferred out to the baking/packaging department because they were 100% complete.
• They carried with them $4,950 in accumulated costs. Preparing the Production Cost Report for subsequent departments is similar to preparing the report for the first department, with the addition of a column for costs transferred in. Let’s make these assumptions for the baking/packaging department for the month of January: • Jan 14: 750 pie crusts (uncooked) transferred from mixing to baking/packaging—baked, packaged, quality-checked, and transferred to the cooler on Jan 19. • Jan 20: 750 pie crusts (uncooked) transferred from mixing to baking/packaging—baked, packaged, quality-checked, and transferred to the cooler on Jan 25. • Jan 26: 750 pie crusts (uncooked) transferred from mixing to baking/packaging—500 baked, packaged, quality-checked, and transferred to the cooler on Jan 31, leaving 250 pie crusts 20% through the process. • All direct materials in this combined department (packing materials) are added at the end of the process, so the 250 shells remaining in work-in-process on January 31 are 0% complete as to direct materials. • Costs accumulated in the accounting records are: •$600 in direct materials

### Step 4 – Allocate costs based on equivalent units

Refer to step 2:

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Multiply the cost per equivalent unit by the number of equivalent units for each category of units accounted for: Completed and transferred out, and Ending work-in-process.

Completed and transferred out

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Ending work-in-process

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Notice that under this Equivalent Units method of allocating costs, no direct materials were allocated to ending work in process because the EUs were zero. However, because we are using the average method instead of the First-in, First-out (FIFO) method, which uses the assumption that the flow of goods through the system is a constant mix, we still have costs left in the “transferred in” column. Using a FIFO cost-flow assumption, we would have allocated those costs to finished goods first.

Before we examine the FIFO method, let’s complete the production cost report for this department and check your understanding of how subsequent departments differ from the first department.

### Step 5 – Complete the production report

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And here is a summary of total inventory at the end of January based on the two production reports:

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Thus, all the costs from both departments are accounted for and allocated to the proper category.

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Now, check your understanding of the second or subsequent stage of a multi-step process using the weighted-average method of process costing.