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:

Work in Process-Sifting Department
(800 units, 3/5 completed):
Direct materials (800 × $2.15)	$1,720
Conversion (800 × 3/5 × $0.50)	240
	$1,960

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

Direct materials transferred from Milling Department:
15,500 units at $2.25 a unit	$34,875
Direct labor	4,540
Factory overhead	4,018

During July, 15,000 units of flour were completed. Work in Process-Sifting Department on July 31 was 1,300 units, 4/5 completed.

	Required:
1.	Prepare a cost of production report for the Sifting Department for July. If an amount is zero, enter "0". Round your cost per unit answers to the nearest cent and final answers to the nearest dollar amount.
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. Use the date July 31 for all journal entries.
3.	Determine the increase or decrease in the cost per equivalent unit from June to July for direct materials and conversion costs. Round your answers to the nearest cent.
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	800
Units started this period	15500
Total unit to be accounted for	16300
Units Accounted for:
Units completed and transferred out
From beginning inventory Material - 0% Conversion - 2/5	800	0	320
Started and completed currently	14200	14200	14200
Units in ending WIP Material - 100% Conversion - 4/5	1300	1300	1040
Total units accounted for	16300	15500	15560

White Diamond Flour Company
Sifting Department
Computation of Cost per Equivalent unit
Particulars	Total cost	Material	Conversion
Current period cost	$43,433.00	$34,875.00	$8,558.00
Equivalent units		15500	15560
Cost per equivalent unit		$2.25	$0.55

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	$1,960	$1,720	$240
Current cost added to complete beginning WIP:
Material	$0	$0
Conversion (320 * $0.55)	$176		$176
Total Cost from beginning inventory	$2,136	$1,720	$416
Current cost of unit started and completed:
Material (14200*$2.25)	$31,950	$31,950
Conversion (14200*$0.55)	$7,810		$7,810
Total cost of unit started and completed	$39,760	$31,950	$7,810
Total cost of unit transferred out	$41,896	$33,670	$8,226
Cost assigned to ending WIP:
Material (1300*$2.25)	$2,925	$2,925
Conversion (1040*$0.55)	$572		$572
Total ending WIP inventory	$3,497	$2,925	$572
Total cost accounted for	$45,393	$36,595	$8,798

Solution 2:

Journal Entries - White Diamond Flour Company
Date	Particulars	Debit	Credit
July	Work In Process - Sifting Department Dr	$34,875.00
	To Work In Process - Milling Department		$34,875.00
	(Being cost transferred from milling to sifting department)
July	Work In Process - Packaging Department Dr	$41,896.00
	To Work In Process - Sifting Department		$41,896.00
	(Being cost transferred from sifting to packaging department)

Solution 3:

Change in direct material cost per equivalent unit form june to july = $2.25 - $2.15 = $0.10 increase

Change in conversion cost per equivalent unit form june to july = $0.55 - $0.50 = $0.05 increase

Solution 4:

The cost production report helps in distribution of total cost into cost of unit completed & transferred and cost of ending work in process inventory. Further it also helps in comparison of cost from previous period to current period and helps manager to take corrective action for increase or decrease in cost per unit as determined in part 3.

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