Question

1. During the previous month, a small retail company called Green Inc. purchased 800 bundles of a certain type of product at a price of $40 per bundle, which was $7 more than the standard price. The standard quantity for this type of product is 840 bundles. What is the journal entry to record the purchase of materials?

1. Debit Materials for $26,400; Debit Materials Price Variance for $5,600 U; Credit Accounts Payable for $32,000.
2. Debit Materials for $20,800; Debit Materials Price Variance for $5,600 F; Credit Accounts Payable for $26,400.
3. Debit Materials for $37,600; Debit Materials Price Variance for $5,600 U; Credit Accounts Payable for $26,400.
4. Debit Materials for $37,600; Debit Materials Price Variance for $5,600 F; Credit Accounts Payable for $32,000.

2. During March, Black Diamond Corp., a tire manufacturing company, purchased 650 bundles of a certain type of raw material at a price of $45 per bundle, which was $6 less than the standard price. Its standard quantity of this type of raw material is 500 bundles. What is the journal entry to record the purchase of materials?

1. Debit Materials for $25,350; Debit Materials Price Variance for $3,900 U; Credit Accounts Payable for $29,250.
2. Debit Materials for $29,250; Debit Materials Price Variance for $3,900 F; Credit Accounts Payable for $33,150.
3. Debit Materials for $33,150; Credit Materials Price Variance for $3,900 F; Credit Accounts Payable for $29,250.
4. Debit Materials for $29,250; Debit Materials Price Variance for $3,900 U; Credit Accounts Payable for $25,350.

Answer 1

To record entry for material price variance ,

Material account will be recorded with standard cost.

Account payable will be recorded with actual cost of material

Difference will be recorded in material price variance account.

Also standard cost will be calculated based on actual bundles , not on the budgeted .

1. Standard cost = 800 bundles * ( $40 - $7) = $26400

Actual cost = 800 * 40 = $32000

Material price variance = $32000 - $26400 = $5600 unfavourable

Hence answer will be option A.

2. Standard cost = 650 * ($45 + $6) = $33150

Actual cost = 650 bundles * 45 = $29250

Material price variance = $33150 - $29250 = $3900 favourable

Hence answer will be option C