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	32,200	Completed and transferred to Blending	?
Materials	153,600
Direct labor	67,200
Overhead	479,000
March 31 balance	?

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $8,100; direct labor, $3,900; and overhead, $20,200.

Costs incurred during March in the Blending Department were: materials used, $44,000; direct labor, $16,100; and overhead cost applied to production, $110,000.

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, $656,000. (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, $740,000.
7. Completed units were sold on account, $1,350,000. The Cost of Goods Sold was $600,000.

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	$	211,600
Work in process—Blending Department	$	56,000
Finished goods	$	28,000

Answer 1

Answer-1-Journal Entries

Transaction	Account Title and Explanation	Debit ($)	Credit ($)
(a)	Work in Process-Refining Department	153,600
	Work in Process-Blending Department	44,000
	Raw Materials		197,600
	(To record Raw materials used in production)
(b)	Work in Process-Refining Department	67,200
	Work in Process-Blending Department	16,100
	Salaries and Wages Payable		83,300
	(To record Direct labor costs incurred)
(c)	Manufacturing Overhead	656,000
	Accounts Payable		656,000
	(To record Manufacturing overhead costs incurred for the entire factory)
(d)	Work in Process-Refining Department	479,000
	Manufacturing Overhead		479,000
	(To record manufacturing overhead)
(d)	Work in Process-Blending Department	110,000
	Manufacturing Overhead		110,000
	(To record manufacturing overhead)
(e)	Work in Process-Blending Department	672,000
	Work in Process-Refining Department		672,000
	(To record units transferred to Blending department)
(f)	Finished Goods	740,000
	Work in Process-Blending Department		740,000
	(To record units transferred to finished goods)
(g)	Accounts Receivable	1,350,000
	Sales		1,350,000
	(To record sales on account)
	Cost of goods sold	600,000
	Finished goods		600,000
	(To record cost of goods sold)

2-T-Accounts

Raw Materials Inventory					Work in Process-Refining Department
	Debit	Credit				Debit	Credit
Beg. Bal.	211,600				Beg. Bal.	32,200
		197,600	a.		a.	153,600	672,000	e.
End. Bal.	14,000				b.	67,200
					d.	479,000
					End. Bal.	60,000
Work in Process-Blending Department					Finished Goods Inventory
	Debit	Credit				Debit	Credit
Beg. Bal.	56,000				Beg. Bal.	28,000
a.	44,000	740,000	f.		f.	740,000	600,000	g.
b.	16,100
d.	110,000
e.	672000
End. Bal.	158,100				End. Bal.	168,000
Wages Payable					Cost of Goods Sold (COGS)
	Debit	Credit				Debit	Credit
		83,300	b.		g.	600,000
End. Bal.		83,300			End. Bal.	600,000
Manufacturing Overhead					Sales Revenue
	Debit	Credit				Debit	Credit
c.	656,000	589,000	d.				1,350,000	g.
End. Bal.	67,000				End. Bal.		1,350,000
Accounts Payable					Accounts Receivable
	Debit	Credit				Debit	Credit
		656,000	c.		g.	1,350,000
End. Bal.		656,000			End. Bal.	1,350,000

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