In: Accounting
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 | 32,600 | Completed and
transferred to Blending |
? |
Materials | 153,600 | ||
Direct labor | 76,200 | ||
Overhead | 480,000 | ||
March 31 balance | ? |
The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $7,800; direct labor, $4,300; and overhead, $20,500.
Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $16,300; 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, $616,000. (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, $632,000.
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, $1,410,000. 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 | $ | 213,600 |
Work in process—Blending Department | $ | 44,000 |
Finished goods | $ | 28,000 |
1.
No. | Account Titles and Explanation | Debit | Credit |
a. | Work in process-Refining department | 153600 | |
Work in process-Blending department | 45000 | ||
Raw Materials inventory | 198600 | ||
(To record direct materials used in production) | |||
b. | Work in process-Refining department | 76200 | |
Work in process-Blending department | 16300 | ||
Wages payable | 92500 | ||
(To record direct labor costs incurred) | |||
c. | Manufacturing overhead | 616000 | |
Accounts Payable | 616000 | ||
(To record manufacturing overhead incurred) | |||
d. | Work in process-Refining department | 480000 | |
Work in process-Blending department | 102000 | ||
Manufacturing overhead | 582000 | ||
(To record manufacturing overhead applied) | |||
e. | Work in process-Blending department | 632000 | |
Work in process-Refining department | 632000 | ||
(To record transfers from Refining to Blending department) | |||
f. | Finished goods inventory | 760000 | |
Work in process-Blending department | 760000 | ||
(To record goods completed and transferred to finished goods) | |||
g. | Accounts receivable | 1410000 | |
Sales revenue | 1410000 | ||
(To record sales on account) | |||
Cost of goods sold | 650000 | ||
Finished goods inventory | 650000 | ||
(To record cost of sales) |
2.
Raw Materials Inventory | Work in Process-Refining Department | |||||||
Debit | Credit | Debit | Credit | |||||
Beg. Bal. | 213600 | 198600 | a. | Beg. Bal. | 32600 | |||
a. | 153600 | 632000 | e. | |||||
End. Bal. | 15000 | b. | 76200 | |||||
d. | 480000 | |||||||
End. Bal. | 110400 | |||||||
Work in Process-Blending Department | Finished Goods Inventory | |||||||
Debit | Credit | Debit | Credit | |||||
Beg. Bal. | 44000 | Beg. Bal. | 28000 | |||||
a. | 45000 | 760000 | f. | f. | 760000 | 650000 | g. | |
b. | 16300 | |||||||
d. | 102000 | |||||||
e. | 632000 | |||||||
End. Bal. | 79300 | End. Bal. | 138000 | |||||
Wages Payable | Cost of Goods Sold (COGS) | |||||||
Debit | Credit | Debit | Credit | |||||
92500 | b. | g. | 650000 | |||||
End. Bal. | 92500 | End. Bal. | 650000 | |||||
Manufacturing Overhead | Sales Revenue | |||||||
Debit | Credit | Debit | Credit | |||||
c. | 616000 | 582000 | d. | 1410000 | g. | |||
End. Bal. | 34000 | End. Bal. | 1410000 | |||||
Accounts Payable | Accounts Receivable | |||||||
Debit | Credit | Debit | Credit | |||||
616000 | c. | g. | 1410000 | |||||
End. Bal. | 616000 | End. Bal. | 1410000 |