AQ Inc. uses standard costing for the accounting of its product. The budget officer provided the following standard data imposed by the top-level management concerning the direct materials: Standard direct material is P3 per unit of the product. Standard price is P5 per unit of direct material. During the year, the company acquired on account 1,000 units of direct material at a total cost of P4,000. It also manufactured 150 products using 750 direct materials. The journal entry to record the material purchase variance will include a Debit to raw materials at P4,000 b Credit to accounts payable at P3,750 c Debit to material price variance at P750 d Credit to material price variance at P1,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
- AQ Inc. uses
standard costing for the accounting of its product. The budget officer provided the following standard data imposed by the top-level management concerning the direct materials:
- Standard direct material is P3 per unit of the product.
- Standard price is P5 per unit of direct material.
During the year, the company acquired on account 1,000 units of direct material at a total cost of P4,000. It also manufactured 150 products using 750 direct materials.
The
a Debit to raw materials at P4,000
b Credit to accounts payable at P3,750
c Debit to material price variance at P750
d Credit to material price variance at P1,000
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