Kemper Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $1,000,000. At December 31, 2020, the raw materials to be purchased have a market value of $950,000. In 2021, Kemper paid $1,000,000 to obtain the raw materials which were worth $950,000. Prepare the entry to record the purchase

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Business

Cael Lawrence

22 February, 17:32

Kemper Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $1,000,000. At December 31, 2020, the raw materials to be purchased have a market value of $950,000. In 2021, Kemper paid $1,000,000 to obtain the raw materials which were worth $950,000. Prepare the entry to record the purchase

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Puck · Answer 1

the recording of materials purchased is handled by three different methods.

Explanation:

Sr. No Particulars Debit Credit

Purchases $950,000

Material Price Purchase Price Variance $50,000

Cash $1000,000

Method 1: Record the price variance when materials are received.

Method 2: Record the materials on actual costs and determine the price variance when material is requisitioned.

Method 3: Combination of method 1 and method 2.

For control purposes the price variance should be determined when the material is received