Question

Kemper Company signed a long-term noncancelable purchase commitment with a major supplier to purchase raw materials in 2021 at a cost of $1,000,000. At December 31, 2020, the raw materials to be purchased have a market value of $950,000. In 2021, Kemper paid $1,000,000 to obtain the raw materials which were worth $950,000. Prepare the entry to record the purchase

Answer 1

Answer:

the recording of materials purchased is handled by three different methods.

Explanation:

Sr. No                Particulars                        Debit                  Credit

                    Purchases                            $950,000

 Material Price Purchase Price Variance     $50,000

                            Cash                                                      $1000,000

Method 1: Record the price variance when materials are received.

Method 2: Record the materials on actual costs and determine the price variance when material is requisitioned.

Method 3:  Combination of method 1 and method 2.

For control purposes the price variance should be determined when the material is received