Asked by Haneen Hmedat on May 22, 2024
Verified
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 recording the raw materials used in production in transaction (b) above, the Raw Materials inventory account will increase (decrease) by:
A) ($355,832)
B) $355,832
C) $351,150
D) ($351,150)
Raw Materials Inventory
Refers to the total cost of all the materials that are not yet processed and used in production, stored in a warehouse or inventory.
Gallons
A unit of volume for liquid measures, used primarily in the United States, equal to four quarts or approximately 3.785 liters.
Standard Costs
Predicted costs for performing a task under normal conditions, used for budgeting and measuring performance.
- Use knowledge of accounting transactions to register the purchase and utilization of raw materials, direct labor, and manufacturing overhead under a standard cost system.
Verified Answer
JB
JAMES BAILEYMay 27, 2024
Final Answer :
D
Explanation :
The standard cost per gallon of raw material is $7.50 ($450,000 ÷ 60,000 gallons) and the company purchased the raw material for $7.60 per gallon. Therefore, there is an unfavorable direct materials price variance of $0.10 per gallon ($7.60 − $7.50). The calculation of the raw materials used in production is as follows:
46,820 gallons used × $7.50 standard cost per gallon = $351,150
Since the direct materials price variance is unfavorable, the Raw Materials inventory account will decrease by $351,150. Therefore, the correct answer is D) ($351,150).
46,820 gallons used × $7.50 standard cost per gallon = $351,150
Since the direct materials price variance is unfavorable, the Raw Materials inventory account will decrease by $351,150. Therefore, the correct answer is D) ($351,150).
Learning Objectives
- Use knowledge of accounting transactions to register the purchase and utilization of raw materials, direct labor, and manufacturing overhead under a standard cost system.