Seafarer Company established a standard direct materials cost of 1.5 gallons at $2 per gallon for one unit of its product.During the past month,actual production was 6,500 units.The material quantity variance was $700 favorable and the material price variance was $470 unfavorable.The entry to charge Work in Process Inventory for the standard material costs during the month and to record the direct material variances in the accounts would include all of the following except:

A) A debit to Work in Process for $19,500.
B) A credit to Raw Materials for $19,270.
C) A debit to Direct Material Price Variance for $470.
D) A credit to Direct Material Quantity Variance for $700.
E) A debit to Cost of Goods Sold for $230.

Question

Cassandra Nicolas · Accepted Answer

Final Answer : E, Explanation :  The entry would include a debit to Work in Process for $19,500 (6,500 units x 1.5 gallons x $2 per gallon), a credit to Raw Materials for $19,270 (6,500 units x 1.5 gallons x actual price of $2.98 per gallon [$2 + ($470/1.5)]), a debit to Direct Material Price Variance for $470 (the unfavorable variance), and a credit to Direct Material Quantity Variance for $700 (the favorable variance). The entry would not include a debit to Cost of Goods Sold for $230, as this account would only be affected when the finished goods are sold.

Definitions

Learning Objectives

Learning Objectives

Related questions