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	31,500		Completed and transferred        to Blending	?
Materials	139,600
Direct labor	79,200
Overhead	483,000
March 31 balance	?

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $7,700; direct labor, $3,400; and overhead, $20,400.

Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $17,100; and overhead cost applied to production, $115,000.

Required:

1.	Prepare journal entries to record the costs incurred in both the Refining Department and Blending Department during March. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

a.	Raw materials were issued for use in production.
b.	Direct labor costs were incurred.
c.	Manufacturing overhead costs for the entire factory were incurred, $646,000. (Credit Accounts Payable.)
d.	Manufacturing overhead cost was applied to production using a predetermined overhead rate.
e.	Units that were complete with respect to processing in the Refining Department were transferred to the Blending Department, $672,000.
f.	Units that were complete with respect to processing in the Blending Department were transferred to Finished Goods, $720,000.

g.	Completed units were sold on account, $1,490,000. 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 account is given above.)

Raw materials	$	212,600
Work in process—Blending Department	$	39,000
Finished goods	$	16,000

After posting the entries to the T-accounts, find the ending balance in the inventory accounts and the manufacturing overhead account.

Raw materials	$	212,600
Work in process—Blending Department	$	39,000
Finished goods	$	16,000

After posting the entries to the T-accounts, find the ending balance in the inventory accounts and the manufacturing overhead account.

Answer 1

Solution:

Journal Entries - Lubricants Inc.
Event	Particulars	Debit	Credit
a	Work In Process - Refining department Dr	$139,600.00
	Work In Process - Blending department Dr	$45,000.00
	To Raw material inventory		$184,600.00
	(To record material used in production)
b	Work In Process - Refining department Dr	$79,200.00
	Work In Process - Blending department Dr	$17,100.00
	To Wages Payable		$96,300.00
	(To record direct labor cost incurred)
c	Manufacturing overhead Dr	$646,000.00
	To Accounts Payable		$646,000.00
	(To record manufacturing overhead incurred)
d	Work In Process - Refining department Dr	$483,000.00
	Work In Process - Blending department Dr	$115,000.00
	To Manufacturing overhead		$598,000.00
	(To apply manufacturing overhead)
e	Work In Process - Blending department Dr	$672,000.00
	To Work In Process - Refining department		$672,000.00
	(Being units completed in refining transferred to Blending)
f	Finished goods inventory Dr	$720,000.00
	To Work In Process - Blending department		$720,000.00
	(Being units completed in blending transferred to finished goods)
g1	Accounts receivables Dr	$1,490,000.00
	To Sales Revenue		$1,490,000.00
	(To record sales on account)
g2	Cost of goods sold Dr	$650,000.00
	To Finished goods inventory		$650,000.00
	(To record cost of goods sold)