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A company records inventory purchases at standard cost and also records purchase price variances. Prepare the  journal...

A company records inventory purchases at standard cost and also records purchase price variances. Prepare the  journal entry for a purchase of 6,000 widgets that were bought at $8.00 and have a standard cost of $8.15.

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Answer #1

The journal entry to record the inventory purchase and related price variance is explained below.

Journal Entry

Widgets Inventory A/c.....Dr (6000x8.15) 48,900

To Accounts Payable (6000x8.00) 48,000

To Material Price variance. 900

((8.15-8.00)x 6000)

Here the Widgets Inventory consists of actual quantity of Widgets purchased at the standard price. Accounts payable reflects the actual cost. Material price variance shows a credit balance as it is a favourable variance. It must also be noted that variance accounts are temporary accounts and are closed at the end of financial reporting period.

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