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	34,700	Completed and transferred to Blending	?
Materials	152,600
Direct labor	77,200
Overhead	490,000
March 31 balance	?

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $8,700; direct labor, $4,300; and overhead, $21,700.

Costs incurred during March in the Blending Department were: materials used, $46,000; direct labor, $17,000; and overhead cost applied to production, $103,000.

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.

1. Raw materials used in production.
2. Direct labor costs incurred.
3. Manufacturing overhead costs incurred for the entire factory, $646,000. (Credit Accounts Payable.)
4. Manufacturing overhead was applied to production using a predetermined overhead rate.
5. Units that were complete with respect to processing in the Refining Department were transferred to the Blending Department, $672,000.
6. Units that were complete with respect to processing in the Blending Department were transferred to Finished Goods, $800,000.
7. Completed units were sold on account, $1,430,000. The Cost of Goods Sold was $630,000.

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	$	207,600
Work in process—Blending Department	$	45,000
Finished goods	$	18,000

Answer 1

S. No.	Accounts Title and Explanations	Debit	Credit
a	Work in Process-Refining Department	$1,52,600
	Work in Process-Blending Department	$46,000
	Raw Material control account		$1,98,600
	(issue of materials for production)
b	Work in Process-Refining Department	$77,200
	Work in Process-Blending Department	$17,000
	Cash		$94,200
	(direct labor costs incurred)
c	Manufacturing Overhead Control Account	$6,46,000
	Accounts payable		$6,46,000
	(incurring of manufacturing overhead expenses)
d	Work in Process-Refining Department	$4,90,000
	Work in Process-Blending Department	$1,03,000
	Manufacturing Overhead Control Account		$5,93,000
	(OH applied at pre-determined rates)
e	Work in Process-Blending Department	$6,72,000
	Work in Process-Refining Department		$6,72,000
	(being the cost of units completed and transferred)
f	Finished Goods	$8,00,000
	Work in Process-Blending Department		$8,00,000
	(being the cost of finished goods transferred)
g	Cost of Goods sold	$6,30,000
	Finished Goods		$6,30,000
	(being the cost of goods sold)

Work in Process-Refining Department
March 1   Balance                                      34,700	Completed and transferred to Blending    672,000
Raw Material                          152,600	March 31 Balance                                                     82,500
Labor                                          77,200	_______
OH applied                              490,000
754500	754,500

Work in Process-Blending Department
March 1   Balance                                      45,000	Completed & transferred to Finished          800000
Transfer from refining dep 672,000	March 31 Balance                                                    83000
Raw Material                            46,000
Labor                                          17000
OH applied                              103,000	_______
883000	883000

Finished Goods A/c
March 1   Balance                                         18000	Cost of goods sold                                          630,000
Transfer from blending          800000	March 31 Balance                                           188,000
818000	818000