When the actual price paid on credit for a raw material is less than its standard price, the journal entry would include:
A) Debit to Raw Materials; Credit to Materials Price Variance
B) Debit to Accounts Payable; Credit to Materials Price Variance
C) Debit to Raw Materials; Debit to Materials Price Variance
D) Debit to Accounts Payable; Debit to Materials Price Variance

Question

Quizplus · Accepted Answer

When the actual price paid on credit for a raw material is less than its standard price, a credit balance is generated in the Materials Price Variance account. To reduce this credit balance, a debit is made to Raw Materials, and an equal credit is made to the Materials Price Variance account. Therefore, the correct journal entry would be Debit to Raw Materials; Credit to Materials Price Variance. Option B is incorrect because when paying on credit, a debit is made to Accounts Payable, not Materials Price Variance. Option C is incorrect because, in this scenario, there is no need for a debit to the Materials Price Variance account as the variance is favorable. Option D is incorrect because it incorrectly debits the Materials Price Variance account instead of Raw Materials.

When the Actual Price Paid on Credit for a Raw