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 31,000 Completed and transferred to Blending ?

Materials 156,600

Direct labor 71,200

Overhead 486,000

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, $19,900.

Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $17,600; and overhead cost applied to production, $106,000. 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, $646,000. (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, $642,000. Units that were complete with respect to processing in the Blending Department were transferred to Finished Goods, $770,000. Completed units were sold on account, $1,320,000. The Cost of Goods Sold was $660,000.

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 $ 205,600 Work in process—Blending Department $ 55,000 Finished goods $ 30,000

Answer 1

1.

Transactions	General Journal	Debit	Credit
a.	Work in process-Refining department	156600
	Work in process-Blending department	45000
	Raw Materials		201600
	(To record direct materials used in production)
b.	Work in process-Refining department	71200
	Work in process-Blending department	17600
	Salaries and Wages payable		88800
	(To record direct labor costs incurred)
c.	Manufacturing overhead	646000
	Accounts Payable		646000
	(To record manufacturing overhead incurred)
d.	Work in process-Refining department	486000
	Work in process-Blending department	106000
	Manufacturing overhead		592000
	(To record manufacturing overhead applied)
e.	Work in process-Blending department	642000
	Work in process-Refining department		642000
	(To record transfers from Refining to Blending department)
f.	Finished goods	770000
	Work in process-Blending department		770000
	(To record goods completed and transferred to finished goods)
g.(1)	Accounts receivable	1320000
	Sales		1320000
	(To record sales on account)
g.(2)	Cost of goods sold	660000
	Finished goods		660000
	(To record cost of sales)

2.

Accounts Receivable					Raw Materials
	Debit	Credit				Debit	Credit
g.(1)	1320000				Beg. Bal.	205600
							201600	a.
End. Bal.	1320000				End. Bal.	4000
Work in Process-Refining Department					Work in Process-Blending Department
	Debit	Credit				Debit	Credit
Beg. Bal.	31000				Beg. Bal.	55000
a.	156600	642000	e.		a.	45000	770000	f.
b.	71200				b.	17600
d.	486000				d.	106000
					e.	642000
End. Bal.	102800				End. Bal.	95600
Finished Goods					Manufacturing Overhead
	Debit	Credit				Debit	Credit
Beg. Bal.	30000				c.	646000	592000	d.
f.	770000	660000	g.(2)
End. Bal.	140000				End. Bal.	54000
Accounts Payable					Salaries and Wages Payable
	Debit	Credit				Debit	Credit
		646000	c.				88800	b.
End. Bal.		646000			End. Bal.		88800
Sales					Cost of Goods Sold (COGS)
	Debit	Credit				Debit	Credit
		1320000	g.(1)		g.(2)	660000
End. Bal.		1320000			End. Bal.	660000