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	147,600
Direct labor	78,200
Overhead	490,000
March 31 balance	?

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $8,800; direct labor, $4,500; and overhead, $20,500.

Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $16,500; and overhead cost applied to production, $116,000.

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, $636,000. (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, $770,000.
7. Completed units were sold on account, $1,360,000. The Cost of Goods Sold was $620,000.

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	$	209,600
Work in process—Blending Department	$	51,000
Finished goods	$	24,000

Answer 1

No	Account titles and explanation	Debit	Credit
1.	Work in process- Refining Department	$147600
	Work in process—Blending Department	$45000
	Raw materials		$192600
	(To record raw materials used into production)
2.	Work in process- Refining Department	$78200
	Work in process—Blending Department	$16500
	Salaries and wages payable		$94700
	(To record direct labor costs incurred)
3.	Manufacturing overhead	$636000
	Accounts payable		$636000
	(To record manufacturing overhead costs incurred)
4.	Work in process- Refining Department	$490000
	Work in process—Blending Department	$116000
	Manufacturing overhead		$606000
	(To record manufacturing overhead costs applied)
5.	Work in process—Blending Department	$672000
	Work in process- Refining Department		$672000
	(To record completed units transfer from Refining Department to Blending Department )
6.	Finished goods	$770000
	Work in process—Blending Department		$770000
	(To record completed units transfer from Blending Department to Finished goods)
7(1)	Accounts receivable	$1360000
	Sales		$1360000
	(To record sales on account)
7(2)	Cost of goods sold	$620000
	Finished goods		$620000
	(To record cost of goods sold)

2)

Raw materials					Work in process- Refining Department
March 1 balance	$209600	1.	192600		March 1 balance	$33800	5	672000
					1	147600
					2	78200
					4	490000
March 31 balance	$17000				March 31 balance	$77600
Work in process—Blending Department					Finished goods
March 1 balance	$51000	6	770000		March 1 balance	$24000	7(2)	620000
1	45000				6	770000
2	16500
4	116000
5	672000
March 31 balance	130500				March 31 balance	$174000
Manufacturing Overhead					Salaries and wages payable
3.	636000	4.	606000				2.	94700
March 31 balance	$30000				March 31 balance			94700
Accounts Payable					Accounts Receivable
		3.	636000		7(1)	1360000
March 31 balance			636000		March 31 balance	1360000
Sales					Cost of Goods Sold
		7(1)	1360000		7(2)	620000
March 31 balance			1360000		March 31 balance	620000

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