Lisser 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 2.7 liters per unit at $7.50 per liter or $20.25 per unit. During the year, the company purchased 67,300 liters of raw material at a price of $8.00 per liter and used 61,660 liters of the raw material to produce 22,800 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 recording the raw materials used in production, the Raw Materials inventory account will increase (decrease) by:
A) ($493,280)
B) $493,280
C) $462,450
D) ($462,450)

Question

Quizplus · Accepted Answer

The actual cost of the raw material purchased is ($8.00 x 67,300) = ($538,400). The standard cost of the raw material used in production is (2.7 liters/unit x $7.50/liter x 22,800 units) = $455,400. The variance is the difference between the actual cost and the standard cost, which is ($538,400 - $455,400) = $83,000 unfavorable. Since the system records variances directly to Cost of Goods Sold, Raw Materials inventory account will decrease by the standard cost of the raw material used in production minus the actual cost of the raw material purchased plus the unfavorable variance, which is ($455,400 - $538,400 + $83,000) = ($462,450). Therefore, the answer is D.

Lisser Corporation Uses a Standard Cost System in Which Inventories