Marciano Manufacturing uses a standard cost system. Standards for direct materials are as follows: Direct materials (pounds per unit of output) 3 Cost per pound of direct materials $ 3 The company plans to produce 3 comma 000 units and has purchased on account 15 comma 000 pounds of direct materials at a net cost of $ 42 comma 600. What is the journal entry to record this transaction?

Question

Business

Daphne Pineda

27 January, 08:31

Marciano Manufacturing uses a standard cost system. Standards for direct materials are as follows: Direct materials (pounds per unit of output) 3 Cost per pound of direct materials $ 3 The company plans to produce 3 comma 000 units and has purchased on account 15 comma 000 pounds of direct materials at a net cost of $ 42 comma 600. What is the journal entry to record this transaction?

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Makhi Hester · Answer 1

The journal entry for this transaction is as follows:

Raw material Inventory A/c Dr. $72,000

To Direct material cost variance $28,200

To Accounts payable $43800

(To record the raw material transaction)

Workings:

Standard cost of Actual quantity purchased:

= Actual Quantity purchased * Standard price

= 15,000 * $3

= $45,000

Material Price variance:

= Standard cost of actual material purchased - Actual material cost

= $45,000 - $42,600

= $2,400

As the Price variance is favorable it shall be credited to Direct material cost variance.