The Dexon Company makes and sells a single product called a Mip and uses a standard costing system. The following standards have been established for one unit of Mip: There were no inventories of any kind on August 1. During August, the following events occurred:
Purchased 15,000 board feet at the total cost of $24,000.
Used 12,000 board feet to produce 2,100 Mips.
Used 1,700 hours of direct labor time at a total cost of $20,060.
-To record the use of direct materials in production, the general ledger would include what entry to the Materials Quantity Variance account?
A) $3,600 debit
B) $3,600 credit
C) $900 debit
D) $900 credit

Question

The Dexon Company makes and sells a single product called a Mip and uses a standard costing system. The following standards have been established for one unit of Mip:  There were no inventories of any kind on August 1. During August, the following events occurred:
  Purchased 15,000 board feet at the total cost of $24,000.
  Used 12,000 board feet to produce 2,100 Mips.
  Used 1,700 hours of direct labor time at a total cost of $20,060.
-To record the use of direct materials in production, the general ledger would include what entry to the Materials Quantity Variance account?
A) $3,600 debit 
B) $3,600 credit 
C) $900 debit 
D) $900 credit

Quizplus · Accepted Answer

To record the use of direct materials in production, the general ledger would include an entry to the Materials Quantity Variance account. The formula for calculating the Materials Quantity Variance is: 
Actual Quantity Used x Standard Price - Standard Quantity Allowed x Standard Price

In this case, the actual quantity used is 12,000 board feet and the standard quantity allowed for the production of 2,100 Mips is 10,500 board feet (5 board feet per Mip x 2,100 Mips).

So the Materials Quantity Variance is: 
12,000 x $2 - 10,500 x $2 = $3,000 (Favorable)

Since the actual cost of materials used was higher than the standard cost, the Materials Quantity Variance is favorable. Therefore, the entry to the Materials Quantity Variance account should be a credit to reduce the cost of materials used.

So the answer is D) $900 credit, which represents one-third of the total Materials Quantity Variance ($3,000 divided by 3).

The Dexon Company Makes and Sells a Single Product Called