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	31,700	Completed and transferred to Blending	?
Materials	151,600
Direct labor	72,200
Overhead	475,000
March 31 balance	?

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $8,100; direct labor, $3,800; and overhead, $19,800.

Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $16,800; and overhead cost applied to production, $105,000.

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, $626,000. (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, $710,000.

Completed units were sold on account, $1,460,000. The Cost of Goods Sold was $680,000.

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	$	51,000
Finished goods	$	29,000

Answer 1

1.

No.	Account Titles and Explanation	Debit	Credit
a.	Work in process-Refining department	151600
	Work in process-Blending department	45000
	Raw Materials inventory		196600
	(To record direct materials used in production)
b.	Work in process-Refining department	72200
	Work in process-Blending department	16800
	Wages payable		89000
	(To record direct labor costs incurred)
c.	Manufacturing overhead	626000
	Accounts Payable		626000
	(To record manufacturing overhead incurred)
d.	Work in process-Refining department	475000
	Work in process-Blending department	105000
	Manufacturing overhead		580000
	(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 inventory	710000
	Work in process-Blending department		710000
	(To record goods completed and transferred to finished goods)
g.	Accounts receivable	1460000
	Sales revenue		1460000
	(To record sales on account)
	Cost of goods sold	680000
	Finished goods inventory		680000
	(To record cost of sales)

2.

Raw Materials Inventory					Work in Process-Refining Department
	Debit	Credit				Debit	Credit
Beg. Bal.	206600				Beg. Bal.	31700
		196600	a.		a.	151600	682000	e.
End. Bal.	10000				b.	72200
					d.	475000
					End. Bal.	48500
Work in Process-Blending Department					Finished Goods Inventory
	Debit	Credit				Debit	Credit
Beg. Bal.	51000				Beg. Bal.	29000
a.	45000	710000	f.		f.	710000	680000	g.
b.	16800
d.	105000
e.	682000
End. Bal.	189800				End. Bal.	59000
Wages Payable					Cost of Goods Sold (COGS)
	Debit	Credit				Debit	Credit
		89000	b.		g.	680000
End. Bal.		89000			End. Bal.	680000
Manufacturing Overhead					Sales Revenue
	Debit	Credit				Debit	Credit
c.	626000	580000	d.				1460000	g.
End. Bal.	46000				End. Bal.		1460000
Accounts Payable					Accounts Receivable
	Debit	Credit				Debit	Credit
		626000	c.		g.	1460000
End. Bal.		626000			End. Bal.	1460000