Question

Lubricants, Inc., produces a special kind of grease that is widely used by race car drivers. The grease is produced in two processing departments—Refining and Blending. Raw materials are introduced at various points in the Refining Department.

The following incomplete Work in Process account is available for the Refining Department for March:

Work in Process—Refining Department
March 1 balance	32,300	Completed and transferred to Blending	?
Materials	147,600
Direct labor	74,200
Overhead	480,000
March 31 balance	?

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $7,700; direct labor, $4,700; and overhead, $19,900.

Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $16,300; and overhead cost applied to production, $106,000.

Required:

1. Prepare journal entries to record the costs incurred in both the Refining Department and Blending Department during March. Key your entries to the items (a) through (g) below.

Raw materials used in production.

Direct labor costs incurred.

Manufacturing overhead costs incurred for the entire factory, $636,000. (Credit Accounts Payable.)

Manufacturing overhead was applied to production using a predetermined overhead rate.

Units that were complete with respect to processing in the Refining Department were transferred to the Blending Department, $682,000.

Units that were complete with respect to processing in the Blending Department were transferred to Finished Goods, $760,000.

Completed units were sold on account, $1,310,000. The Cost of Goods Sold was $650,000.

2. Post the journal entries from (1) above to T-accounts. The following account balances existed at the beginning of March. (The beginning balance in the Refining Department’s Work in Process is given in the T-account shown above.)

Raw materials	$	206,600
Work in process—Blending Department	$	50,000
Finished goods	$	25,000

Answer 1

Solution 1:

Journal Entries - Lubricants Inc.
Event	Particulars	Debit	Credit
a	Work In Process - Refining department Dr	$147,600.00
	Work In Process - Blending department Dr	$45,000.00
	To Raw material inventory		$192,600.00
	(To record material used in production)
b	Work In Process - Refining department Dr	$74,200.00
	Work In Process - Blending department Dr	$16,300.00
	To Wages Payable		$90,500.00
	(To record direct labor cost incurred)
c	Manufacturing overhead Dr	$636,000.00
	To Accounts Payable		$636,000.00
	(To record manufacturing overhead incurred)
d	Work In Process - Refining department Dr	$480,000.00
	Work In Process - Blending department Dr	$106,000.00
	To Manufacturing overhead		$586,000.00
	(To apply manufacturing overhead)
e	Work In Process - Blending department Dr	$682,000.00
	To Work In Process - Refining department		$682,000.00
	(Being units completed in refining transferred to Blending)
f	Finished goods inventory Dr	$760,000.00
	To Work In Process - Blending department		$760,000.00
	(Being units completed in blending transferred to finished goods)
g1	Accounts receivables Dr	$1,310,000.00
	To Sales Revenue		$1,310,000.00
	(To record sales on account)
g2	Cost of goods sold Dr	$650,000.00
	To Finished goods inventory		$650,000.00
	(To record cost of goods sold)

Solution 2:

Raw materials inventory
Particulars	Debit	Particulars	Credit
March 1 balance	$206,600.00	Material used	$192,600.00
March 31, balance	$14,000.00

Work In Process - Refining
Particulars	Debit	Particulars	Credit
March 1 balance	$32,300.00	Completed and transferred to Blending	$682,000.00
Material	$147,600.00
Direct labor	$74,200.00
Overhead	$480,000.00
March 31, balance	$52,100.00

Work In Process - Blending
Particulars	Debit	Particulars	Credit
March 1 balance	$50,000.00	Completed and transferred to Finished Goods	$760,000.00
Transferred from Refining	$682,000.00
Material	$45,000.00
Direct labor	$16,300.00
Overhead	$106,000.00
March 31, balance	$139,300.00

Finished Goods Inventory
Particulars	Debit	Particulars	Credit
March 1 balance	$25,000.00	Cost of goods sold	$650,000.00
Transferred from Blending	$760,000.00
March 31, balance	$135,000.00

Manufacturing overhead
Particulars	Debit	Particulars	Credit
Overhead incurred	$636,000.00	Overhead applied	$586,000.00
March 31, balance	$50,000.00

Cost of goods sold
Particulars	Debit	Particulars	Credit
Finished goods inventory	$650,000.00
March 31, balance	$650,000.00

Sales Revenue
Particulars	Debit	Particulars	Credit
		Accounts receivables	$1,310,000.00
		March 31, balance	$1,310,000.00