Calculation of manufacturing costs using the roll-over method and the multiplication method
The manufacturing cost is calculated by dividing the cost of products into three parts: "work-in-process at the beginning of the month + manufacturing cost of the month - work-in-process at the end of the month," which is called rolling costing.
On the other hand, in the actual costing, the calculation is done using the "gross average monthly evaluation value of input items + self-induced costs of the process", and then the gross average unit cost is calculated from the material to the product, and then the cost of each process is accumulated by the "(gross average unit cost x actual input quantity) + self-induced processing cost".
Since both the rollover method and the accumulation method result in the same amount of cost, I think they are generally used interchangeably.
The total average unit price can be calculated using the following formula.
- Total Average Unit Value = (Amount in stock at the beginning of the month + Manufacturing unit value for the month) / (Quantity in stock at the beginning of the month + Manufacturing unit value for the month)
One of the features of the actual cost accounting is that the payout cost can be calculated based on the total average unit price taking into account the inventory information at the beginning of the month, and the total average unit price of the production items in the own process is applied to the unit price of the input results to the next process.
- Actual Input Volume x Total Average Unit Price
- Direct labor costs (costs incurred in own process)
- Manufacturing overheads (costs incurred in own process)
The sum of these two totals is the cost of production for the month, and the total average unit cost is determined by taking into account the inventory at the beginning of the month, which is then applied as the unit cost of actual input to the next process and becomes the product manufacturing cost of the final process.
Relationship between Current Month's Production Cost and Total Average Unit Price
As a matter of course, what is referred to as "calculating product manufacturing costs using the gross average unit cost" is not "gross average unit cost of products x number of products manufactured".
This is because the total average unit cost of products is calculated based on "product inventory at the beginning of the month + cost of products manufactured during the month," which is calculated after the product manufacturing cost.
In other words, the gross average unit price that exists when calculating the manufacturing cost is only the gross average unit price of input items as long as the gross average unit price is calculated from downstream to upstream.
The gross average unit cost is calculated by item and is reflected in the current production cost of input items in the next process by item.
- Total average unit price of direct materials = (Direct materials at the beginning of the month + direct materials in the month)/(Direct materials at the beginning of the month + the quantity in the month)
- Total average unit cost of direct labor = (Direct labor at the beginning of the month + direct labor in the month)/(Direct labor at the beginning of the month + quantity in the month)
- Total average unit price per ton = (current month's production + current month's production) / (beginning of month's production + current month's production)
The gross average unit price by expense item also accumulates as you move upstream, but items that do not incur costs in their own process are the same amount as the accumulated costs in the previous process, so they are not recorded in the incurred costs by expense item. The current month's manufacturing cost is the incurred cost of input items in each process evaluated by the total average unit cost of each item.
Calculation of accumulation of total average unit costs by item
If you are able to calculate the accumulation of the gross average unit price by item, you can multiply the quantity used by the quantity used to automatically calculate the production cost for the month by item.
The total average unit cost can be calculated only when the manufacturing cost of the month and the amount of inventory at the beginning of the month are available, and the total average unit cost is the basis of the evaluated value of input actual input in the next process. The total average unit cost of production for the month is the sum of the evaluated value of input actual inputs based on the gross average unit price and the processing cost of the company's own processes (according to the allocation), and by repeating this from downstream (materials) to upstream (products), the cost of production of the final products and the gross average unit price can be obtained.
The total average unit price is accumulated from downstream to upstream for each expense item, and the difference between the accumulated amount up to the previous process is the total average unit price for the amount generated in the own process.