Baldwin, Inc uses a standard job cost system and purchased 25,000 kg. of material at $6 per kg., and used it all. The standard amount allowed for the output achieved is 22,500 kg, and the standard price is $6.50 per kg. The company also incurred 37,500 direct labour hours for $450,000. The standard hourly price was $11 per hour, and 39,000 hours were allowed at standard. Assuming all variances are immaterial, answer the following questions: The entry to record the direct material price variance will include a:
A)Debit to materials inventory for $150,000
B)Debit to account payable for $162,500
C)Credit to the price variance for $12,500
D)Debit to the price variance for $16,250

Question

Quizplus · Accepted Answer

The direct material price variance is calculated as (Actual Price - Standard Price) x Actual Quantity. Here, it is ($6 - $6.50) x 25,000 kg = -$0.50 x 25,000 = -$12,500, which is a favorable variance, hence a credit.

Baldwin, Inc Uses a Standard Job Cost System and Purchased