The following standards have been established for a raw material used in the production of product U98: Standard quantity of the material per unit of output 2.6poundsStandard price of the material$14.50per poundThe following data pertain to a recent month's operations: Actual material purchased 7,600PoundsActual cost of material purchased$110,960 Actual material used in production 7,300PoundsActual output 2,800units of product U98Required:a. What is the materials price variance for the month?b. What is the materials quantity variance for the month?c. Prepare journal entries to record the purchase and use of the raw material during the month. (All raw materials are purchased on account.)
What will be an ideal response?
a.
Materials price variance = (AQ × AP) - (AQ × SP).
= $110,960 - (7,600 pounds × $14.50 per pound).
= $110,960 - $110,200.
= $760 U.
b.
Materials quantity variance = SP(AQ - SQ).
= $14.50 per (7,300 pounds - 7,280 pounds*).
= $105,850 - $105,560 = $290 U.
*2,800 units × 2.6 pounds = 7,280.
c.
Journal entries to record the purchase and use of the raw material:
| Raw materials inventory | 110,200 | |
| Materials price variance | 760 | |
| Accounts payable | 110,960 |
| Work-in-process inventory | 105,560 | |
| Materials quantity variance | 290 | |
| Raw materials inventory | 105,850 |
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