Landoni Corporation Uses a Standard Cost System in Which Inventories

question 71

Multiple Choice

Landoni 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 kilos per unit at $5.00 per kilo or $13.50 per unit.During the year,the company purchased 75,200 kilos of raw material at a price of $4.90 per kilo and used 69,290 kilos of the raw material to produce 25,700 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 purchases,the Raw Materials inventory account will increase (decrease) by:

• A) ($368,480)
• B) $376,000
• C) ($376,000)
• D) $368,480

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Definitions:

Short Run

refers to a period in which at least one input in the production process is fixed and cannot be changed.

Long Run

A period in economics where all factors of production and costs are variable, allowing companies to adjust to new conditions.

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the total quantity produced, indicating the cost per unit of product.

Marginal Revenue

The additional income received from selling one more unit of a good or service.