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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

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 companys only product contains the following information concerning direct materials:

Inputs Standard Quantity or Hours Standard Price or Rate Standard Cost
Direct materials 3.7 kilos $ 9.00 per kilo $ 33.30

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:

Materials price variance $ 106,260 U
Materials quantity variance $ 900 F

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.

Cash Raw Materials Work in Process Finished Goods PP&E (net) = Materials Price Variance Materials Quantity Variance Labor Rate Variance Labor Efficiency Variance FOH Budget Variance FOH Volume Variance Retained Earnings
1/1 $1,130,000 $59,940 $0 $81,510 $432,900 = $0 $0 $0 $0 $0 $0 $1,704,350
a. =
b. =

When recording the raw materials used in production in transaction (b) above, the Work in Process inventory account will increase (decrease) by:

Multiple Choice

  • $1,267,830

  • $1,268,730

  • ($1,267,830)

  • ($1,268,730)

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