Lisser Corporation Uses a Standard Cost System in Which Inventories

question 41

Multiple Choice

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 Property, Plant, and Equipment (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)

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Definitions:

Contingent Liability

A potential liability that may become an actual liability in the future.

Warranty Expense

Costs associated with the obligation to repair or replace a product due to defects for a specified period.

Bad Debt Expense

An expense account to record uncollectible receivables.

Payroll Activities

The administrative tasks associated with processing employee wages, withholding taxes, and ensuring the accurate calculation of pay.