Neuhaus Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs. There is no variable manufacturing overhead. The standard cost card for the company's only product is as follows:
During the year, the company completed the following transactions:
a. Purchased 52,900 gallons of raw material at a price of $7.60 per gallon.
b. Used 46,820 gallons of the raw material to produce 27,600 units of work in process.
Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.

-When the raw materials used in production are recorded in transaction (b)above,which of the following entries will be made?
A) $750 in the Materials Quantity Variance column
B) $750 in the Materials Price Variance column
C) ($750) in the Materials Quantity Variance column
D) ($750) in the Materials Price Variance column

Question

Neuhaus Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs. There is no variable manufacturing overhead. The standard cost card for the company's only product is as follows:
  During the year, the company completed the following transactions:
a. Purchased 52,900 gallons of raw material at a price of $7.60 per gallon.
b. Used 46,820 gallons of the raw material to produce 27,600 units of work in process.
Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.
  
-When the raw materials used in production are recorded in transaction (b)above,which of the following entries will be made?
A) $750 in the Materials Quantity Variance column 
B) $750 in the Materials Price Variance column 
C) ($750) in the Materials Quantity Variance column 
D) ($750) in the Materials Price Variance column

Quizplus · Accepted Answer

The materials price variance is recorded when materials are purchased; the materials quantity variance is recorded when raw materials are used.
Materials quantity variance:
SQ = Actual output × Standard quantity = 27,600 units × 1.7 gallons per unit = 46,920 gallons
Materials quantity variance = (AQ - SQ) × SP
= (46,820 gallons - 46,920 gallons) × $7.50 per gallon
= (-100 gallons) × $7.50 per gallon
= $750 F
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Neuhaus Corporation Manufactures One Product