Lakatos Corporation Manufactures One Product

question 76

Multiple Choice

Lakatos 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 contains the following information concerning direct materials:
During the year, the company completed the following transactions concerning direct materials:
a. Purchased 151,800 kilos of raw material at a price of $9.70 per kilo.
b. Used 140,870 kilos of the raw material to produce 38,100 units of work in process.
The company calculated the following direct materials variances for the year:
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 the purchase of raw materials is recorded in transaction (a) above,which of the following entries will be made?

• A) $106,260 in the Materials Quantity Variance column
• B) ($106,260) in the Materials Quantity Variance column
• C) ($106,260) in the Materials Price Variance column
• D) $106,260 in the Materials Price Variance column

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Definitions:

Employee Salaries

Payments made to employees for their services over a fixed period, typically regularly scheduled and in fixed amounts.

Activity Variance

The difference between budgeted activity levels and actual activity levels.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Variable Costs

Expenditures that are directly linked to the production or sales volume, including direct labor and raw materials.