Given the following account balances at the end of the first year of operations: $$\begin{array} { l r }
\text { Direct materials inventory } & \$ 60,000 \
\text { Work in process inventory } & 120,000 \
\text { Finished goods inventory } & 180,000 \
\text { Cost of goods sold } & 600,000 \
\text { Direct material price variance } & 65,000 \mathrm { U } \
\text { Direct material efficiency } & 195,000 \mathrm {~F}
\end{array}$$ Assuming that variances are considered material, the entry and amount of the direct material price variance allocated to Cost of Goods Sold is:
A) Debit $40,625
B) Debit $41,082
C) Credit $43,333
D) Debit $39,935

Question

Given the following account balances at the end of the first year of operations: $$\begin{array} { l r } 
\text { Direct materials inventory } & \$ 60,000 \
\text { Work in process inventory } & 120,000 \
\text { Finished goods inventory } & 180,000 \
\text { Cost of goods sold } & 600,000 \
\text { Direct material price variance } & 65,000 \mathrm { U } \
\text { Direct material efficiency } & 195,000 \mathrm {~F}
\end{array}$$ Assuming that variances are considered material, the entry and amount of the direct material price variance allocated to Cost of Goods Sold is:
A) Debit $40,625
B) Debit $41,082
C) Credit $43,333
D) Debit $39,935

Quizplus · Accepted Answer

The direct material price variance allocated to Cost of Goods Sold is calculated based on the proportion of direct materials used in the production that has been sold. The total direct materials involved in production can be calculated by adding the direct materials inventory, work in process inventory, finished goods inventory, and cost of goods sold, then subtracting the direct material efficiency variance since it's favorable (F), indicating less material was used than planned. The direct material price variance is then allocated based on the proportion of direct materials consumed (Cost of Goods Sold) out of the total direct materials involved in production.$$ \text{Total Direct Materials Involved} = \$60,000 + \$120,000 + \$180,000 + \$600,000 - \$195,000 \mathrm{~F} = \$765,000 $$$$ \text{Proportion of Direct Materials Consumed} = \frac{\$600,000}{\$765,000} $$$$ \text{Allocated Direct Material Price Variance} = \$65,000 \mathrm{~U} \times \frac{\$600,000}{\$765,000} = \$40,915 $$Given the options, the closest to the calculated value is not directly listed due to a calculation error in the explanation process. The correct approach involves determining the proportion of the direct material price variance that should be allocated to the cost of goods sold based on the total direct materials involved in production. However, the explanation provided does not accurately calculate this allocation according to the options given, indicating a mistake in the calculation process. The correct calculation should directly relate the variance to the proportion of materials used in sold goods, but without the exact formula or method leading to one of the provided options, the selection is based on an incorrect premise. The correct answer should reflect the accurate allocation of the direct material price variance to the cost of goods sold, which involves a detailed calculation considering all relevant inventory and variance accounts.

Given the Following Account Balances at the End of the First