David Skaros Memo

Memorandum

TO: David Skaros, Production Manager

FROM: Supreme Jones, Senior Accountant

DATE: Monday, June 18, 2018

SUBJECT: Production Costs

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.

Good Afternoon Mr. Skaros,

The purpose of this memo is to address

An equivalent unite of production is reflective of the amount of work that is completed by a manufacturer who may have maintained completed unit on hand that is calculated at the end of the accounting period(AccountingCoach, 2017). Equivalent inventory of production, as you may be aware, is almost always less than the actual inventory. How this is computed is based on the fact that 1 unit is equal to 100% completed units and half that unit is equal to 50% completed units, and at the end of the accounting period, both units are calculated as equivalent(Kimmel, et., al.). The method is used to ascertain the cost per 1 unit of a completed product. For example, if a department begins with 0 units in the inventory, it then began and also completed 10,000 units, but also started another 1000 units but only completed 20% of them. In this example, the equivalent units of production that would be reported in the production cost report would be 10200 units, which is reflected in the fully completed units and the partially completed units. On the surface, it gives the impression that more units are completed that it actually is but is the most effective way for giving management a general idea of how much work in completed at the end of an accounting

Also, please take into consideration how these reports are completed. These reports essentially summarize the cost of production activity with a specific reporting period and is a formalized summary of the four main steps that accounting uses to assign a fixed cost to units that are in and out in the final work-in-progress(WIP) inventory, which is inventory that is partially completed(Kimmel, et.al., 2017). In order for accounting to prepare its balance sheet, it is necessary to utilize these four steps to ensure that the production cost report reflects accurate data on inventory(Accounting Coach, 2017). The steps that were performed in creating this report were as