A company records their inventory purchases at standard cost but also records purchase price variances. The company purchased 5,000 widgets $8.00. The standard cost for the widgets is $7.60. Which of the following would be included in the journal entry?
A) $38,000 Debit to Accounts Payable
B) $ 2,000 Credit to Direct Materials Price Variance
C) $ 2,000 Debit to Accounts Payable
D) $ 2,000 Debit to Direct Materials Price Variance

Question

Quizplus · Accepted Answer

The difference between the purchase price and the standard cost is known as the direct materials price variance. This variance should be recorded separately from the inventory purchase in order to properly analyze and manage costs. Therefore, the correct journal entry would include a debit of $2,000 to the Direct Materials Price Variance account. None of the other options would properly account for the price variance.

A Company Records Their Inventory Purchases at Standard Cost but Also