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
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

I am not too sure whether it is FIFO or average. This was not stated. This was the exact question

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	600
Units started this period	15400
Total unit to be accounted for	16000
Units Accounted for:
Units completed and transferred out
From beginning inventory Material - 0% Conversion - 2/5	600	0	240
Started and completed currently	13800	13800	13800
Units in ending WIP Material - 100% Conversion - 4/5	1600	1600	1280
Total units accounted for	16000	15400	15320

White Diamond Flour Company
Sifting Department
Computation of Cost per Equivalent unit
Particulars	Total cost	Material	Conversion
Current period cost	$43,084.00	$36,190.00	$6,894.00
Equivalent units		15400	15320
Cost per equivalent unit		$2.35	$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	$1,494	$1,350	$144
Current cost added to complete beginning WIP:
Material	$0	$0
Conversion (240 * $0.45)	$108		$108
Total Cost from beginning inventory	$1,602	$1,350	$252
Current cost of unit started and completed:
Material (13800*$2.35)	$32,430	$32,430
Conversion (13800*$0.45)	$6,210		$6,210
Total cost of unit started and completed	$38,640	$32,430	$6,210
Total cost of unit transferred out	$40,242	$33,780	$6,462
Cost assigned to ending WIP:
Material (1600*$2.35)	$3,760	$3,760
Conversion (1280*$0.45)	$576		$576
Total ending WIP inventory	$4,336	$3,760	$576
Total cost accounted for	$44,578	$37,540	$7,038

Solution 2:

Journal Entries - White Diamond Flour Company
Date	Particulars	Debit	Credit
July	Work In Process - Sifting Department Dr	$36,190.00
	To Work In Process - Milling Department		$36,190.00
	(Being cost transferred from milling to sifting department)
July	Work In Process - Packaging Department Dr	$40,242.00
	To Work In Process - Sifting Department		$40,242.00
	(Being cost transferred from sifting to packaging department)

solution 3:

Change in cost per equivalent unit of direct material from June to July = $2.35 - $2.25 = $0.10 Increase

Change in cost per equivalent unit of conversion from June to July = $0.45 - $0.40 = $0.05 Increase

Solution 4:

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