Question

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

Instructions

Chart of Accounts

Cost of Production Report

Journal

Final Questions

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Instructions

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
(700 units, 3/5 completed):
Direct materials (700 × $2.25)	$1,575
Conversion (700 × 3/5 × $0.30)	126
	$1,701

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

Direct materials transferred from Milling Department:
15,800 units at $2.35 a unit	$37,130
Direct labor	4,520
Factory overhead	1,017

During July, 15,200 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).

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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

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Cost of Production Report

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.

WHITE DIAMOND FLOUR COMPANY
Cost of Production Report-Sifting Department
For the Month Ended July 31
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 (3/5 completed)
Started and completed in July
Transferred to Packaging Department in July
Inventory in process, July 31 (4/5 completed)
Total units to be assigned costs

COSTS	Costs
	Direct Materials	Conversion	Total
Cost 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
Costs 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

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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. Use the date July 31 for all journal entries.

PAGE 10

JOURNAL

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

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Final Questions

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.

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

White Diamond Flour Company
Cost of Production Report-Sifting Department
For the Month Ended July 31
Unit Information
Units charged to production:
Inventory in process, July 1			700
Received from Milling department			15800
Total units accounted for by the Sifting Department			16500
Units to be assigned costs:
		Equivalent Units
	Whole Units	Direct Materials	Conversion
Inventory in process, July 1	700	0	280
Started and completed in July	14500	14500	14500
Transferred to Packaging Department in July	15200	14500	14780
Inventory in process, July 31	1300	1300	1040
Total units to be assigned costs	16500	15800	15820
Cost Information
Costs per equivalent unit:
		Direct Materials	Conversion
Total costs for July in Sifting Department		37130	5537
Total equivalent units		15800	15820
Cost per equivalent unit		2.35	0.35
Costs charged to production:
	Direct Materials	Conversion	Total
Inventory in process, July 1			1701
Costs incurred in July			42667
Total costs accounted for by the Sifting Department			44368
Cost allocated to completed and partially completed units:
Inventory in process, July 1 balance			1701
To complete inventory in process, July 1	0	98	98
Cost of completed July 1 work in process			1799
Started and completed in July	34075	5075	39150
Transferred to Packaging Department in July			40949
Inventory in process, July 31	3055	364	3419
Total costs assigned by the Sifting Department			44368
2
Description	Debit	Credit
July 31   Work in Process-Sifting Department	37130
Work in Process-Milling Department		37130
July 31 Work in Process-Packaging Department	40949
Work in Process-Sifting Department		40949
3
	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit	Increase	0.10	=2.35-2.25
Change in conversion cost per equivalent unit	Increase	0.05	=0.35-0.30
4
The cost of production report may be used as the basis for allocating product costs between Work in Process and Transferred-out. 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.