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	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

Answer 1

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