Ladue 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 3.6 kilos per unit at $7.00 per kilo.During the year, the company purchased 67,600 kilos of raw material at a price of $6.40 per kilo and used 60,220 kilos of the raw material to produce 16,700 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 Work in Process inventory account will increase (decrease) by:

A) $421,540
B) ($421,540)
C) $420,840
D) ($420,840)

Question

Angelica Aguilar · Accepted Answer

Final Answer : C, Explanation :  To calculate the increase in Work in Process inventory, multiply the standard cost per unit ($7.00) by the actual amount of raw material used (60,220 kilos). This gives a total of $421,540 of raw materials used in production. However, since the actual cost per kilo ($6.40) is less than the standard cost per kilo ($7.00), there is a favorable variance of $0.60 per kilo. Multiply this favorable variance by the actual amount of raw material used (60,220 kilos) to get a total favorable variance of $36,132. Thus, the net increase in Work in Process inventory is $421,540 - $36,132 = $420,840. Work in Process increases by the standard cost of the standard quantity of raw materials allowed for the actual output, which is SQ × SP = (16,700 units × 3.6 kilos per unit)× $7.00 per kilo = 60,120 kilos × $7.00 per kilo = $420,840.

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