The Production Manager of a Company Was Experiencing High Defect

question 15

Multiple Choice

The production manager of a company was experiencing high defect rate on the assembly line, which was slowing production and causing wastage of valuable materials. He decided to purchase a higher grade of material which would be more reliable, but he was worried that the cost of the new material might negatively impact operating income. This situation could have produced which of the following variances?

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

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Definitions:

Profit and Loss

A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year.

Complex Businesses

Enterprises that operate in multiple industries or markets, have various products or services, and face multifaceted management challenges.

Balance Sheet

A financial statement that displays a company’s assets, liabilities, and shareholders' equity at a specific point in time.

Double-entry Bookkeeping

A bookkeeping method in which each transaction is entered twice, with one entry being recorded as a debit in one account and a corresponding credit in another.