The Production Manager of a Company, in an Effort to Gain

question 41

Multiple Choice

The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with her factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This situation could have produced which of the following variances?

• A) Unfavorable materials price variance
• B) Unfavorable labor price variance
• C) Unfavorable labor efficiency variance
• D) Favorable materials efficiency variance

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Definitions:

Full Goodwill Method

An accounting approach where goodwill is calculated as the difference between the purchase price and the fair value of the identifiable net assets of the acquired entity, including the non-controlling interest's share of the net assets.

Control Premium

The additional amount willing to be paid over the fair market value of a company's shares, reflecting the value of obtaining control of the company.

Partial Goodwill Method

An accounting technique used in business combinations where goodwill is only recognized for the owners' share in the acquired party, not the non-controlling interest (NCI).