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

1) Journal Entries:
S.No.	Acc Title	Debit $	Credit $
a	Work in Process - refining	153600
	Work in Process - blending	44000
	Raw materials		197600
	(being RM put to operation)
b	Work in Process - refining	67200
	Work in Process - blending	16100
	Payrolls		83300
	(being direct labor put to operation)
c	Manufacturing Overhead	656000
	Accounts payable		656000
	(overheads incurred made payable)
d	Work in Process - refining	479000
	Work in Process - blending	110000
	Manufacturing Overhead		589000
	(overhead applied to operations)
e	Work in Process - blending	672000
	Work in Process - refining		672000
	(semi-finished goods transferred to Blending deptt)
f	Finished Goods	740000
	Work in Process - blending		740000
	(finished goods transferred)
g	Accounts Receivable	1350000
	Sales revenue		1350000
	(sales revenue made receivable)
g	COGS	600000
	Finished Goods		600000
	(Being cost of sales recorded)

2) T-Accounts:
DEBIT	AMOUNT $	CREDIT	AMOUNT $
Raw Material a/c
OB	211600	WIP- REF	153600
		WIP- BLEND	44000
		CB	14000
Work in process - Refining a/c
OB	32200	WIP- BLEND	672000
DM	153600	CB	60000
DL	67200
Overhead	479000
Work in process - Blending a/c
OB	56000	FG	740000
WIP- REF	672000	CB	158100
DM	44000
DL	16100
Overhead	110000
Finished Goods a/c
OB	28000	COGS	600000
WIP- BLEND	740000	CB	168000
Manufacturing overhead a/c
Exp. Incurred	656000	WIP- REF	479000
		WIP- BLEND	110000
		CB	67000