Lemke Corporation Uses a Standard Cost System in Which Inventories

question 129

Multiple Choice

Lemke 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 standard cost card for the company's only product is as follows:
During the year,the company started and completed 12,300 units.Direct labor employees worked 10,540 hours at an average cost of $22.40 per hour.
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 the direct labor cost is recorded,which of the following entries will be made?

• A) $20,026 in the Labor Efficiency Variance column
• B) $20,026 in the Labor Rate Variance column
• C) ($20,026) in the Labor Rate Variance column
• D) ($20,026) in the Labor Efficiency Variance column

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Definitions:

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than its competitors, which enhances efficiency in international trade.

Production Possibilities

A curve or frontier representing the maximum combination of goods and services that can be produced efficiently with available resources and technology.

Specialize

To focus on a particular area of expertise or production, often to increase efficiency or performance in that area.

Comparative Advantage

The principle that holds a party can produce some goods at a lower relative cost than another, promoting beneficial trade.