Bohon 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 contains the following information concerning direct materials: During the year, the company completed the following transactions concerning direct materials:a. Purchased 19,700 pounds of raw material at a price of $4.70 per pound.b. Used 18,500 pounds of the raw material to produce 18,400 units of work in process.The company calculated the following direct materials variances for the year:
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 recording the raw materials used in production in transaction (b) above, the Raw Materials inventory account will increase (decrease) by:

A) ($86,950)
B) $101,750
C) $86,950
D) ($101,750)

Since the actual cost of raw materials purchased ($92,690) is greater than the standard cost of raw materials purchased ($92,100), there is an unfavorable direct materials price variance. The amount of the unfavorable variance is calculated as follows:

Actual cost - Standard cost = Direct materials price variance
$92,690 - $92,100 = $590 unfavorable

Similarly, since the actual quantity of raw materials used (18,500 lbs) is greater than the standard quantity of raw materials allowed (18,400 lbs), there is an unfavorable direct materials quantity variance. The amount of the unfavorable variance is calculated as follows:

Actual quantity - Standard quantity = Direct materials quantity variance
18,500 lbs - 18,400 lbs = 100 lbs unfavorable

The cost of the raw materials used in production is calculated as follows:

Actual quantity x Actual cost = Actual cost of raw materials used
18,500 lbs x $4.70 = $86,950

Since the actual cost of raw materials used in production is greater than the standard cost of raw materials used in production, there is an unfavorable direct materials usage variance. The amount of the unfavorable variance is calculated as follows:

Actual cost - Standard cost = Direct materials usage variance
$86,950 - ($92,100 + $590) = $5,540 unfavorable

Therefore, the Raw Materials inventory account will decrease by the actual cost of raw materials used in production ($86,950), which is less than the standard cost of raw materials used in production, resulting in an unfavorable variance of ($5,540).

Thus, the correct answer is D, ($101,750).