If Actual Direct Materials Costs Are Greater Than Standard Direct

question 5

Multiple Choice

If actual direct materials costs are greater than standard direct materials costs it means that

• A) actual costs were calculated incorrectly.
• B) the actual unit price of direct materials was greater than the standard unit price of direct materials.
• C) the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected.
• D) the purchasing agent or the production foreman is inefficient.

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Definitions:

Implicit Costs

The opportunity costs that arise from using resources that could have been employed in an alternative use, not directly paid in a financial form.

Normal Profit

The minimum profit necessary for a company to remain in business, equal to the opportunity cost of capital and entrepreneurial effort not invested elsewhere.

Entrepreneur's Talent

The unique set of skills, creativity, and determination that an entrepreneur brings to identifying opportunities and building a business.

Implicit Costs

Implicit costs refer to the opportunity costs of using resources that a company already owns, without any direct payment, for its own production purposes.