Firecracker Company Has Developed the Following Standards for One of Its

question 29

Multiple Choice

Firecracker Company has developed the following standards for one of its products. $\begin{array}{ll}\text { Direct materials: } & 15 \text { pounds } \times \$ 16 \text { per pound } \\\text { Direct labor: } & 4 \text { hours } \times \$ 24 \text { per hour } \\\text { Variable manufacturing overhead: } & 4 \text { hours } \times \$ 14 \text { per hour }\end{array}$
$\text { The following activity occurred during the month of October: }$

$\begin{array}{ll}\text { Materials purchased: } & 10,000 \text { pounds costing } \$ 170,000 \\\text { Materials used: } & 7,200 \text { pounds } \\\text { Units produced: } & 500 \text { units } \\\text { Direct labor: } & 2,300 \text { hours at } \$ 23.60 / \text { hour } \\\text { Actual variable manufacturing overhead: } & \$ 30,000\end{array}$ The company records materials price variances at the time of purchase. The direct materials price variance is

• A)$50,000 favorable.
• B)$50,000 unfavorable.
• C)$10,000 favorable.
• D)$10,000 unfavorable.

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Definitions:

Premium Bond

A bond that is trading above its par value in the financial markets.

Default Risk Premium

The additional yield that an investor demands for holding a bond with default risk over a similar risk-free security.

Nominal Interest Rate

The rate of interest before adjustments for inflation.

Bond Yield

The return an investor realizes on a bond, calculated by dividing the annual interest payments by the bond's current market price.