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
(900 units, 3/5 completed):
Direct materials (900 × $2.05)	$1,845
Conversion (900 × 3/5 × $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.

	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.
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).

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 142 Work in Process-Sifting 143 Work in Process-Packaging 151 Factory Overhead-Milling 152 Factory Overhead-Sifting 153 Factory Overhead-Packaging 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

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	900
Units started this period	15700
Total unit to be accounted for	16600
Units Accounted for:
Units completed and transferred out
From beginning inventory Material - 0% Conversion - 2/5	900	0	360
Started and completed currently	14600	14600	14600
Units in ending WIP Material - 100% Conversion - 4/5	1100	1100	880
Total units accounted for	16600	15700	15840

White Diamond Flour Company
Sifting Department
Computation of Cost per Equivalent unit
Particulars	Total cost	Material	Conversion
Current period cost	$40,883.00	$33,755.00	$7,128.00
Equivalent units		15700	15840
Cost per equivalent unit		$2.15	$0.45

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	$2,061	$1,845	$216
Current cost added to complete beginning WIP:
Material	$0	$0
Conversion (360 * $0.45)	$162		$162
Total Cost from beginning inventory	$2,223	$1,845	$378
Current cost of unit started and completed:
Material (14600*$2.15)	$31,390	$31,390
Conversion (14600*$0.45)	$6,570		$6,570
Total cost of unit started and completed	$37,960	$31,390	$6,570
Total cost of unit transferred out	$40,183	$33,235	$6,948
Cost assigned to ending WIP:
Material (1100*$2.15)	$2,365	$2,365
Conversion (880*$0.45)	$396		$396
Total ending WIP inventory	$2,761	$2,365	$396
Total cost accounted for	$42,944	$35,600	$7,344

Solution 2:

Journal Entries - White Diamond Flour Company
Date	Particulars	Debit	Credit
July	Work In Process - Sifting Department Dr	$33,755.00
	To Work In Process - Milling Department		$33,755.00
	(Being cost transferred from milling to sifting department)
July	Work In Process - Packaging Department Dr	$40,183.00
	To Work In Process - Sifting Department		$40,183.00
	(Being cost transferred from sifting to packaging department)

Solution 3:

Particulars	Direct material	Conversion
Cost per equivalent unit:
From current period	$2.15	$0.45
From beginning period	$2.05	$0.40
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.