One of the Risks of Using Only the Variable Cost

question 29

True/False

One of the risks of using only the variable cost as a base may tempt managers to cut prices as long as prices are above variable cost.

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Definitions:

Direct Labour Hours

The total time workers spend producing a product or service, which directly correlates to the production.

Labour Efficiency Variance

A metric that assesses the difference between the expected amount of labor time to produce a given level of output and the actual labor time used.

Labour Rate Variance

The difference between the actual wage rate paid to workers and the expected (or standard) wage rate, multiplied by the actual hours worked.

Direct Labour Costs

Costs that can be directly attributed to the production of goods or services, such as wages for workers manufacturing a product.