If a Company Records Inventory Purchases at Standard Cost and Also

question 147

Essay

If a company records inventory purchases at standard cost and also records purchase price variances, prepare the journal entry for a purchase of widgets that were bought at $7.45 per unit and have a standard cost of $7.15. The total amount owed to the vendor for this purchase is $33,525.

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Definitions:

Indirect Costs

Costs that are not directly assignable to a specific product or project, such as rent, utilities, and managerial salaries.

Account Analysis

A detailed examination of the components of an account, usually to identify specific trends, costs, or areas of improvement within a business.

Variable Cost

Costs that vary directly with the level of production or output, such as raw materials and direct labor.

Fixed Cost

Costs that remain constant in total regardless of changes in the level of activity within a relevant range, such as rent, salaries, and insurance premiums.