Question

White Diamond Flour Company manufactures flour by a series of three processes, beginning with wheat grain being introduced in the Milling Department. From the Milling Department, the materials pass through the Sifting and Packaging departments, emerging as packaged refined flour.

The balance in the account Work in Process-Sifting Department was as follows on July 1, 2016:

Work in Process-Sifting Department
(700 units, 3/5 completed):
Direct materials (700 × $2.35)	$1,645
Conversion (700 × 3/5 × $0.30)	126
	$1,771

The following costs were charged to Work in Process-Sifting Department during July:

Direct materials transferred from Milling Department:
15,700 units at $2.45 a unit	$38,465
Direct labor	4,480
Factory overhead	1,022

During July, 15,100 units of flour were completed. Work in Process-Sifting Department on July 31 was 1,300 units, 4545 completed.

	Required:
1.	Prepare a cost of production report for the Sifting Department for July.
2.	Journalize the entries for costs transferred from Milling to Sifting and the costs transferred from Sifting to Packaging. Refer to the Chart of Accounts for correct wording of account titles.
3.	Determine the increase or decrease in the cost per equivalent unit from June to July for direct materials and conversion costs.
4.	Discuss the uses of the cost of production report and the results of part (3).

Answer 1

Solution 1:

White Diamond Flour Company
Sifting Department
Computation of Equivalent unit (FIFO)
Particulars	Physical units	Material	Conversion
Units to be accounted for:
Beginning WIP Inventory	700
Units started this period	15700
Total unit to be accounted for	16400
Units Accounted for:
Units completed and transferred out
From beginning inventory Material - 0% Conversion - 2/5	700	0	280
Started and completed currently	14400	14400	14400
Units in ending WIP Material - 100% Conversion - 4/5	1300	1300	1040
Total units accounted for	16400	15700	15720

White Diamond Flour Company
Sifting Department
Computation of Cost per Equivalent unit
Particulars	Total cost	Material	Conversion
Current period cost	$43,967.00	$38,465.00	$5,502.00
Equivalent units		15700	15720
Cost per equivalent unit		$2.45	$0.35

White Diamond Flour Company
Sifting Department
Producton cost report - FIFO
Particulars	Total cost	Material	Conversion
Cost Accounted for :
Cost assigned to unit transferred out:
Cost from beginning WIP Inventory	$1,771	$1,645	$126
Current cost added to complete beginning WIP:
Material	$0	$0
Conversion (280 * $0.35)	$98		$98
Total Cost from beginning inventory	$1,869	$1,645	$224
Current cost of unit started and completed:
Material (14400*$2.45)	$35,280	$35,280
Conversion (14400*$0.35)	$5,040		$5,040
Total cost of unit started and completed	$40,320	$35,280	$5,040
Total cost of unit transferred out	$42,189	$36,925	$5,264
Cost assigned to ending WIP:
Material (1200*$2.45)	$3,185	$3,185
Conversion (1040*$0.35)	$364		$364
Total ending WIP inventory	$3,549	$3,185	$364
Total cost accounted for	$45,738	$40,110	$5,628

Solution 2:

Journal Entries - White Diamond Flour Company
Date	Particulars	Debit	Credit
July	Work In Process - Sifting Department Dr	$38,465.00
	To Work In Process - Milling Department		$38,465.00
	(Being cost transferred from milling to sifting department)
July	Work In Process - Packaging Department Dr	$42,189.00
	To Work In Process - Sifting Department		$42,189.00
	(Being cost transferred from sifting to packaging department)

Solution 3:

Particulars	Direct material	Conversion
Cost per equivalent unit:
From current period	$2.45	$0.35
From beginning period	$2.35	$0.30
Increase (decrease)	$0.10	$0.05

Solution 4:

The cost of production report may be used as the basis for allocating product costs between Units completed & Transferred and Units in ending WIP. The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.