Robins Corporation Manufactures One Product

question 126

Multiple Choice

Robins 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 and any variances are closed directly to Cost of Goods Sold. There is no variable manufacturing overhead. The standard cost card for the company's only product is as follows:
The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $360,000 and budgeted activity of 20,000 hours.
During the year, the company completed the following transactions:
a. Purchased 134,700 pounds of raw material at a price of $9.10 per pound.
b. Used 122,080 pounds of the raw material to produce 32,100 units of work in process.
c. Assigned direct labor costs to work in process. The direct labor workers (who were paid in cash) worked 26,680 hours at an average cost of $17.20 per hour.
d. Applied fixed overhead to the 32,100 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed. Actual fixed overhead costs for the year were $378,400. Of this total, $297,400 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $81,000 related to depreciation of manufacturing equipment.
e. Completed and transferred 32,100 units from work in process to finished goods.
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 purchases in transaction (a) above,the Raw Materials inventory account will increase (decrease) by:

• A) $1,279,650
• B) ($1,279,650)
• C) ($1,225,770)
• D) $1,225,770

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Definitions:

Fixed Costs

Expenditures that do not vary with the degree of output or sales, for instance, rental fees, wages, and insurance premiums.

Break-Even Point

The point at which total costs and total revenues are equal, meaning a business is not making a profit but also not incurring a loss.

Margin of Safety

The difference between actual or projected sales and the break-even sales level, used to assess risk and financial stability.

Variable Costs

Financial outlays that adjust based on the quantity of products made or the scale of sales transactions.