Neuhaus 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 is as follows: During the year, the company completed the following transactions:a. Purchased 52,900 gallons of raw material at a price of $7.60 per gallon.b. Used 46,820 gallons of the raw material to produce 27,600 units of work in process.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) $5,290 in the Materials Price Variance column
B) ($5,290) in the Materials Price Variance column
C) $5,290 in the Materials Quantity Variance column
D) ($5,290) in the Materials Quantity Variance column

Question

Neuhaus 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 is as follows:

During the year, the company completed the following transactions:a. Purchased 52,900 gallons of raw material at a price of $7.60 per gallon.b. Used 46,820 gallons of the raw material to produce 27,600 units of work in process.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) $5,290 in the Materials Price Variance column
B) ($5,290) in the Materials Price Variance column
C) $5,290 in the Materials Quantity Variance column
D) ($5,290) in the Materials Quantity Variance column

Ashley Haringa · Accepted Answer

Final Answer : B, Explanation :  The entry would be a debit to Raw Materials Inventory for the total cost of 52,900 gallons at $7.60 per gallon, which is $401,240. This is recorded in the Actual Cost column. The standard cost for the raw material is $7.50 per gallon, so there is a price variance of ($0.10) per gallon, which results in a favorable variance of $5,290 ($0.10 × 52,900 gallons) in the Materials Price Variance column. This variance is favorable because the actual price paid was lower than the standard price. Therefore, the entry would be ($5,290) in the Materials Price Variance column.

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