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
(600 units, 3535 completed):
Direct materials (600 × $2.25)	$1,350
Conversion (600 × 3535 × $0.40)	144
	$1,494

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

Direct materials transferred from Milling Department:
15,400 units at $2.35 a unit	$36,190
Direct labor	4,420
Factory overhead	2,474

During July, 14,400 units of flour were completed. Work in Process-Sifting Department on July 31 was 1,600 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).

Chart of Accounts

CHART OF ACCOUNTS
White Diamond Flour Company
General Ledger
ASSETS 110 Cash 121 Accounts Receivable 125 Notes Receivable 126 Interest Receivable 131 Materials 141 Work in Process-Milling Department 142 Work in Process-Sifting Department 143 Work in Process-Packaging Department 151 Factory Overhead-Milling Department 152 Factory Overhead-Sifting Department 153 Factory Overhead-Packaging Department 161 Finished Goods 171 Supplies 172 Prepaid Insurance 173 Prepaid Expenses 181 Land 191 Factory 192 Accumulated Depreciation-Factory LIABILITIES 210 Accounts Payable 221 Utilities Payable 231 Notes Payable 236 Interest Payable 251 Wages Payable EQUITY 311 Common Stock 340 Retained Earnings 351 Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Wages Expense 531 Selling Expenses 532 Insurance Expense 533 Utilities Expense 534 Supplies Expense 540 Administrative Expenses 561 Depreciation Expense-Factory 590 Miscellaneous Expense 710 Interest Expense

Cost of Production Report

1. Prepare a cost of production report for the Sifting Department for July.

WHITE DIAMOND FLOUR COMPANY
Cost of Production Report-Sifting Department
For the Month Ended July 31, 2016
UNITS	Whole Units	Equivalent Units
		Direct Materials	Conversion
Units charged to production:
Inventory in process, July 1
Received from Milling Department
Total units accounted for by the Sifting Department
Units to be assigned costs:
Inventory in process, July 1 (3535 completed)
Started and completed in July
Transferred to Packaging Department in July
Inventory in process, July 31 (4545 completed)
Total units to be assigned costs

COSTS	Costs
	Direct Materials	Conversion	Total
Costs per equivalent unit:
Total costs for July in Sifting Department
Total equivalent units	÷	÷
Cost per equivalent unit
Costs assigned to production:
Inventory in process, July 1
Costs incurred in July
Total costs accounted for by the Sifting Department
Cost allocated to completed and
partially completed units:
Inventory in process, July 1 balance
To complete inventory in process, July 1
Cost of completed July 1 work in process
Started and completed in July
Transferred to Packaging Department in July
Inventory in process, July 31
Total costs assigned by the Sifting Department

Journal

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.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4

Final Questions

3. Determine the increase or decrease in the cost per equivalent unit from June to July for direct materials and conversion costs.

Direct materials:
Conversion:

4. The cost of production report may be used as the basis for allocating product costs between ________ and ________ . 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.

Answer 1

1)	WHITE DIAMOND FLOUR COMPANY
	Cost of Production Report-Sifting Department
	For the Month Ended July 31, 2016
	UNITS	Whole Units	Equivalent Units
			Direct Materials	Conversion
	Units charged to production:
	Inventory in process, July 1	600
	Received from Milling Department	15400
	Total units accounted for by the Sifting Department	16000
	Units to be assigned costs:
	Inventory in process, July 1 (35% completed)	600	0	210
	Started and completed in July	13800	13800	13800
	Transferred to Packaging Department in July	14400	13800	14010
	Inventory in process, July 31 (45% completed)	1600	1600	720
	Total units to be assigned costs	16000	15400	14730
	COSTS	Costs
		Direct Materials	Conversion	Total
	Costs per equivalent unit:
	Total costs for July in Sifting Department	$                   36,190	$               6,894	$         43,084
	Total equivalent units	15400	14730
	Cost per equivalent unit	$                        2.35	$                 0.47
	Costs assigned to production:
	Inventory in process, July 1	$                      1,350	$                  144	$           1,494
	Costs incurred in July	$                   36,190	$               6,894	$         43,084
	Total costs accounted for by the Sifting Department	$                   37,540	$               7,038	$         44,578
	Cost allocated to completed and
	partially completed units:
	Inventory in process, July 1 balance	$                      1,350	$                  144	$           1,494
	To complete inventory in process, July 1	$                             -	$                     98	$                 98
	Cost of completed July 1 work in process	$                      1,350	$                  242	$           1,592
	Started and completed in July	$                   32,430	$               6,459	$         38,889
	Transferred to Packaging Department in July	$                   33,780	$               6,701	$         40,481
	Inventory in process, July 31	$                      3,760	$                  337	$           4,097
	Total costs assigned by the Sifting Department	$              37,540	$          7,038	$         44,578
2)	WIP-Sifting Department	36190
	WIP-Milling Department		36190
	WIP-Sifting Department	40481
	WIP-Packaging Department		40481
		Cost Per Equivalent Unit
		July	June	Difference
3)	Direct materials	2.35	2.25	$             0.10	Increase
	Conversion Cost	0.47	0.40	$             0.07	Increase
4)	The cost of production report may be used as the basis for allocating product costs between units completed and ending work in process. 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.