Asked by maggie Radziszewski on May 20, 2024
Verified
Lakatos 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 151,800 kilos of raw material at a price of $9.70 per kilo.b. Used 140,870 kilos of the raw material to produce 38,100 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 the purchase of raw materials is recorded in transaction (a) above, which of the following entries will be made?
A) $106,260 in the Materials Quantity Variance column
B) ($106,260) in the Materials Quantity Variance column
C) ($106,260) in the Materials Price Variance column
D) $106,260 in the Materials Price Variance column
Materials Quantity Variance
The difference between the actual quantity of materials used in production and the expected quantity, based on standards.
Direct Materials
Materials and supplies directly used in the manufacturing of a product and can be directly traced to the finished product.
Standard Cost Card
A document that details the standard quantities and costs of materials, labor, and overhead for a specific product.
- Measure and review disparities from anticipated costs, comprising differences in material pricing, differences in material quantities, labor payment disparities, labor efficacy disparities, fixed overhead financial discrepancies, and fixed overhead space discrepancies.
- Document the acquisition and consumption of primary materials.
Verified Answer
MK
Murali KrishnaMay 23, 2024
Final Answer :
C
Explanation :
When purchase of raw materials is recorded, the entry should be recorded at the actual cost, which is $9.70 per kilo. Since there is no variable manufacturing overhead, there will be no materials usage variance at this point. Therefore, the entry should be debiting Raw Materials Inventory for $1,471,460 (151,800 kilos * $9.70 per kilo) and crediting Accounts Payable for the same amount. The actual cost of materials is used to determine the quantity of materials purchased, and any difference between the actual price and the standard price is recorded as a materials price variance. Therefore, the $106,260 difference between the actual cost and the standard cost should be recorded in the Materials Price Variance column.
Learning Objectives
- Measure and review disparities from anticipated costs, comprising differences in material pricing, differences in material quantities, labor payment disparities, labor efficacy disparities, fixed overhead financial discrepancies, and fixed overhead space discrepancies.
- Document the acquisition and consumption of primary materials.