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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Equivalent units and related costs; cost of production report: entries

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.

Work in Process—Sifting Department (900 units, 3/5 completed):

Direct materials (900 × $2.05) $ 1,845
Conversion (900 × K × $0.40) 216
  $2,061

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

Direct materials transferred from Milling Department;  
15,700 units at $2.15 a unit $33,755
Direct labor 4,420
Factory overhead 2,708

During July, 15,500 units of flour were completed. Work in Process—Sifting Department on July 31 was 1,100 units, 4/5 completed.

Instructions

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.

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).

(1)

To determine

Process costs

It is a method of cost accounting, which is used where the production is continuous, and the product needs various processes to complete. This method is used to ascertain the cost of the product at each process or stage of production.

Equivalents units for production

The activity of a processing department in terms of fully completed units is known as equivalent units. It includes the completed units of direct materials and conversion cost of beginning work in process, units completed and transferred out, and ending work in process.

Production cost report

A production cost report is a comprehensive report prepared for each department separately at the end of a particular period, which represents the physical flow and cost flow of product for the concerned department.

To Determine: The equivalents units for production of direct materials and conversion costs for the month of July for Company WDF.

Explanation

Calculate the equivalents units for production of direct materials and conversion costs for the month of July for Company WDF as shown below:

Figure (1)

Working notes:

Calculate opening work in process inventory for conversion costs as shown below:

Opening work in process inventory for conversion costs) = 135=25=40%

Calculate units started and completed in July as shown below:

Units started and completed in July = (Units transferred out opening  work in process inventory)=15,500units 1,100units=14,600units

Calculate ending work in process inventory for conversion costs as shown below:

Ending work in process inventory for conversion costs) = (Total units for ending work in proces inventory ×Completed percent for conversion costs)=1,100units ×45=880units

Equivalent units for production is calculated by adding units of opening work in process inventory, transferred to finished goods in July, and units for ending work in process inventory. Therefore, an equivalents unit for production for direct materials is 15,700 units and equivalent units for production for conversion costs is 15,840 units.

Calculate direct materials and conversion cost equivalent cost per unit for July as shown below:

Direct material cost per unit =Total direct material costsEquivalent units for direct materials=$33,75515,700units=$2.15Per unit

Conversion cost per unit =Total conversion costsEquivalent units for conversion=$7,12815,840units=$0.45Per unit

Working note:

Calculate total conversion cost for the month of July for Company BC as shown below:

Total conversion cost = Direct labor cost+Factory overhead cost=$100,500 +$48,480=$148,980

Explanation:

Direct material cost per unit is calculated by dividing total direct materials cost by equivalent units for direct materials

(2)

To determine

To Prepare: The journal entry to record cost transferred from milling department to sifting department and cost transferred from sifting department to packaging department during the month of July.

(3)

To determine
Increase or decrease in the cost per equivalent per unit for direct materials and conversion cost between June and July.

(4)

To determine

To Discuss: The uses of cost of production report.

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