A New Project Would Require an Immediate Increase in Raw

question 31

Multiple Choice

A new project would require an immediate increase in raw materials in the amount of $12,000. The firm expects that accounts payable will automatically increase $8,500. How much must the firm expect its investment in net working capital to change if they accept this project?

• A) +$20,000
• B) +$3,500
• C) −$20,500
• D) −$3,500

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Definitions:

Material Purchase Price Variance

A reiteration, focusing on the deviation between the actual amount paid for material and the standard cost.

Standard Price

The predetermined cost assigned to materials, labor, and overhead for the purpose of budgeting and cost control.

Actual Purchase Price

The specific cost paid for goods or services at the time of purchase, as opposed to the budgeted or standard cost.

Variable Manufacturing Overhead

The portion of manufacturing overhead costs that varies with the level of production, such as utilities or materials used in the production process.