Jayson Products Uses a Perpetual Inventory System

question 27

Multiple Choice

Jayson Products uses a perpetual inventory system. At year-end, the Inventory account had a balance of $280,000, but a complete year-end physical inventory indicated goods on hand costing only $273,000. Jayson should:

• A) Reduce its cost of goods sold by $7,000.
• B) Record a $7,000 current liability.
• C) Reduce the balance in its Inventory controlling account and inventory subsidiary ledger by $7,000.
• D) Reduce the balance in the Inventory controlling account and record a current liability, both in the amount of $7,000.

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Definitions:

Direct Materials Inventory

The total cost of raw materials that are directly involved in the manufacturing of a product and are currently held in inventory.

Labour Rate Variance

A financial metric that measures the difference between the actual cost of labor and the expected (or standard) cost.

Labour Efficiency Variance

Labour efficiency variance is the difference between the actual hours worked and the standard hours expected, multiplied by the standard labor rate, used to assess workforce performance.

Standard Labour Rate

A predetermined rate of pay established for work performed, used in budgeting and costing calculations.