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	33,800	Completed and transferred to Blending	?
Materials	154,600
Direct labor	74,200
Overhead	479,000
March 31 balance	?

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $8,200; direct labor, $4,900; and overhead, $20,700.

Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $17,800; and overhead cost applied to production, $102,000.

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, $666,000. (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, $740,000.

Completed units were sold on account, $1,460,000. The Cost of Goods Sold was $640,000.

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	$	205,600
Work in process—Blending Department	$	58,000
Finished goods	$	26,000

Answer 1

1.

Transactions	General Journal	Debit	Credit
a.	Work in process-Refining department	154600
	Work in process-Blending department	45000
	Raw Materials		199600
	(To record direct materials used in production)
b.	Work in process-Refining department	74200
	Work in process-Blending department	17800
	Salaries and Wages payable		92000
	(To record direct labor costs incurred)
c.	Manufacturing overhead	666000
	Accounts Payable		666000
	(To record manufacturing overhead incurred)
d.	Work in process-Refining department	479000
	Work in process-Blending department	102000
	Manufacturing overhead		581000
	(To record manufacturing overhead applied)
e.	Work in process-Blending department	682000
	Work in process-Refining department		682000
	(To record transfers from Refining to Blending department)
f.	Finished goods	740000
	Work in process-Blending department		740000
	(To record goods completed and transferred to finished goods)
g.(1)	Accounts receivable	1460000
	Sales		1460000
	(To record sales on account)
g.(2)	Cost of goods sold	640000
	Finished goods		640000
	(To record cost of sales)

2.

Accounts Receivable					Raw Materials
	Debit	Credit				Debit	Credit
g.(1)	1460000				Beg. Bal.	205600
							199600	a.
End. Bal.	1460000				End. Bal.	6000
Work in Process-Refining Department					Work in Process-Blending Department
	Debit	Credit				Debit	Credit
Beg. Bal.	33800				Beg. Bal.	58000
a.	154600	682000	e.		a.	45000	740000	f.
b.	74200				b.	17800
d.	479000				d.	102000
					e.	682000
End. Bal.	59600				End. Bal.	164800
Finished Goods					Manufacturing Overhead
	Debit	Credit				Debit	Credit
Beg. Bal.	26000				c.	666000	581000	d.
f.	740000	640000	g.(2)
End. Bal.	126000				End. Bal.	85000
Accounts Payable					Salaries and Wages Payable
	Debit	Credit				Debit	Credit
		666000	c.				92000	b.
End. Bal.		666000			End. Bal.		92000
Sales					Cost of Goods Sold (COGS)
	Debit	Credit				Debit	Credit
		1460000	g.(1)		g.(2)	640000
End. Bal.		1460000			End. Bal.	640000