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.

Transaction / Event	Account Titles	Debit	Credit
		$	$
a.	Work in Process: Refining	153,600
	Work in Process: Blending	45,000
	Raw Materials Inventory		198,600
b.	Work in Process: Refining	76,200
	Work in Process: Blending	16,300
	Wages Payable		92,500
c.	Manufacturing Overhead	616,000
	Accounts Payable		616,000
d.	Work in Process: Refining	480,000
	Work in Process: Blending	102,000
	Manufacturing Overhead		582,000
e.	Work in Process: Blending	632,000
	Work in Process Refining		632,000
f.	Finished Goods Inventory	760,000
	Work in Process: Blending		760,000
g.	Accounts Receivable	1,410,000
	Sales		1,410,000
	Cost of Goods Sold	650,000
	Finished Goods Inventory		650,000

2. Raw Materials Inventory:

Beginning Balance	213,600	Work in Process: Refining	153,600
		Work in Process: Blending	45,000
Ending Balance	15,000

Work in Process: Refining

Beginning balance	32,600	Work in Process: Blending	632,000
Raw Materials Inventory	153,600
Wages Payable	76,200
Manufacturing Overhead	480,000
Ending Balance	110,400

Work in Process: Blending:

Beginning Balance	44,000	Finished Goods Inventory	760,000
Work in Process: Refining	632,000
Raw Materials Inventory	45,000
Wages Payable	16,300
Manufacturing Overhead	102,000
Ending Balance	79,300

Finished Goods Inventory

Beginning Balance	28,000	Cost of Goods Sold	650,000
Work in Process: Blending	760,000
Ending Balance	138,000

Manufacturing Overhead:

Accounts Payable	616,000	Work in Process: Refining	480,000
		Work in Process: Blending	102,000
Underapplied	34,000