Landlubber Company established a standard direct materials cost of 1.5 gallons at $2 per gallon for one unit of its product. During the past month, actual production was 6,500 units. The material quantity variance was $700 favorable and the material price variance was $470 unfavorable. The entry to charge Goods in Process Inventory for the standard material costs during the month and to record the direct material variances in the accounts would include:

A) A debit to Goods in Process for $19,500.
B) A credit to Raw Materials for $19,270.
C) A debit to Direct Material Price Variance for $470.
D) A credit to Direct Material Quantity Variance for $700.
E) All of these.

Question

Isaiah Haines · Accepted Answer

Final Answer : E, Explanation :  The standard direct materials cost is calculated as 1.5 gallons at $2 per gallon, which equals $3 per unit. For 6,500 units, the total standard cost is 6,500 units * $3 = $19,500, which matches option A for Goods in Process. The material quantity variance being $700 favorable means less was spent than expected, and the material price variance being $470 unfavorable means more was spent on the price per unit than expected. The total actual cost is therefore $19,500 (standard cost) - $700 (favorable quantity variance) + $470 (unfavorable price variance) = $19,270, which matches option B for the credit to Raw Materials. The entries for the variances, options C and D, correctly reflect the treatment of unfavorable and favorable variances, respectively.

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