Bialas Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold. The standards for direct materials for the company's only product specify 1.6 liters per unit at $7.00 per liter or $11.20 per unit. During the year, the company purchased 36,400 liters of raw material at a price of $7.40 per liter and used 32,060 liters of the raw material to produce 20,100 units of work in process.Assume that all transactions are recorded on a worksheet as shown in the text. On the left-hand side of the equals sign in the worksheet are columns for Cash, Raw Materials, Work in Process, Finished Goods, and Property, Plant, and Equipment (net). All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.When the purchase of raw materials is recorded, which of the following entries will be made?
A) ($14,560) in the Materials Quantity Variance column
B) ($14,560) in the Materials Price Variance column
C) $14,560 in the Materials Price Variance column
D) $14,560 in the Materials Quantity Variance column

Question

Quizplus · Accepted Answer

The entry for the purchase of raw materials would include debiting Raw Materials for the actual cost, which in this case is 36,400 liters x $7.40 per liter = $269,760, and crediting Cash for the same amount. Since the actual price paid for the raw materials is higher than the standard price, there will be an unfavorable variance. The Materials Price Variance column will show this variance as a credit balance, which means that it is subtracted from the standard cost to arrive at the actual cost. The Materials Quantity Variance column is used to record variances that arise from differences between the actual and standard quantities of materials used, not purchased. Therefore, the entry for the purchase of raw materials would not involve the Materials Quantity Variance column.

Bialas Corporation Uses a Standard Cost System in Which Inventories