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 PP&E (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)

The standard cost per unit for direct materials is $20.25, but the actual cost per liter of raw material purchased was $8.00. This creates a materials price variance, which is unfavorable because the actual cost is higher than the standard cost. The variance is calculated as follows:
Actual quantity purchased = 67,300 liters
Actual price = $8.00 per liter
Actual cost = 67,300 liters x $8.00 per liter = $538,400
Standard cost = 61,660 liters x $7.50 per liter = $462,450
Materials price variance = Actual cost - Standard cost
= $538,400 - $462,450
= $75,950 unfavorable
Since the standard cost is used to value inventory, the Raw Materials inventory account will increase by the standard cost of the materials used, which is $462,450. However, the actual cost of the materials is higher, resulting in an unfavorable variance. Therefore, the Raw Materials inventory account will also be credited with the materials price variance, which is $75,950 unfavorable. This means that the Raw Materials inventory account will decrease by a total of $462,450 + $75,950 = $538,400. The answer is D. ($462,450 + $75,950 = $538,400; therefore, Raw Materials inventory will decrease by $538,400).

Raw Materials decreases by the standard cost of the raw materials used in production, which is AQ × SP = 61,660 liters × $7.50 per liter = $462,450.