CIMA BA2 · Chapter 8 · Question 5 of 9
A company holds material inventory at STANDARD cost. It buys 6,000 kg of material on credit at $5.20 per kg; the standard price is $5.00 per kg. Which entries record the purchase?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Debit Materials control $30,000; Debit Material price variance $1,200; Credit Payables $31,200
Explanation
Payables must be credited with the actual amount owed: 6,000 x $5.20 = $31,200. Inventory is held at standard, so materials control is debited with 6,000 x $5.00 = $30,000. The difference of $1,200 is an adverse price variance, recorded as a debit in the material price variance account.
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