Lamont Company produced 80,000 machine parts for diesel engines. There were no beginnings or ending work-in-process inventories in any department. Lamont incurred the following costs for May: Molding Department Grinding Department Finishing Department
Direct materials $12,000 $5,400 $8,000
Direct labor 10,000 8,500 12,000
Applied overhead 17,000 14,000 11,000
Required:
1. Calculate the costs transferred out of each department.
2. Prepare the journal entries corresponding to these transfers. Also, prepare the journal entry for Grinding that reflects the costs added to the transferred-in goods received from Molding.
3. What if the Grinding Department had an ending WIP of $11,000? Calculate the cost transferred out.
4. What is the effect on finished goods calculated in Requirement 1, assuming the other two departments have no ending WIP?

Lamont Company

1. The costs transferred out of each department:

                                       Molding        Grinding     Finishing

Cost transferred out     $39,000       $66,900     $86,900

WIP                                                        $11,000

Cost transferred out    $39,000       $55,900     $86,900

2. Journal Entries:

Debit WIP: Grinding $39,000

Credit WIP: Molding $39,000

To record the transfer of cost from Molding to Grinding.

Debit Finishing $66,900

Credit WIP: Grinding $66,900

To record the transfer of cost from Grinding to Finishing.

Debit Finished Inventory $86,900

Credit Finishing $86,900

To record the transfer of cost from Finishing to Finished Inventory.

3.                                   Molding        Grinding     Finishing

WIP                                                        $11,000

Cost transferred out    $39,000       $55,900     $86,900

4. The effect of the ending WIP in the Grinding Department is that the cost of inventory transferred to the Finishing Department is reduced by the amount of the Work-in-Process Inventory ($11,000).

Explanation:

a) Data and Calculations:

Costs incurred in May:

                                  Molding        Grinding     Finishing  

Direct materials        $12,000          $5,400       $8,000

Direct labor                 10,000            8,500        12,000

Applied overhead      17,000           14,000         11,000

Total costs

 transferred out     $39,000       $27,900      $31,000

Grinding costs         -39,000         39,000

Total costs                0                 $66,900      $31,000

Cost transferred out to finishing -55,900       55,900

Total costs                0                    0              $86,900

WIP                            0                     11,000

d. the economy will face inflation.

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