A Company Was Experiencing Slow Production Rates, and Lower Production

question 164

Multiple Choice

A company was experiencing slow production rates, and lower production volumes than demanded by management, so a new factory manager was hired. Upon investigation, she found that the workers were poorly motivated and not closely supervised. Midway through the quarter, she started an incentive program and paid out cash bonuses when workers hit their production targets. Within a short time, production output increased, but the bonuses had to be charged to the direct labor budget, and she was worried about the impact of these costs on operating income. This situation would have produced a(n) :

• A)unfavorable direct materials cost variance.
• B)unfavorable direct materials efficiency variance.
• C)unfavorable direct labor efficiency variance.
• D)unfavorable direct labor cost variance.

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Definitions:

Forward-Looking Forecasts

Predictive statements or projections about future events, typically concerning a company's revenues, earnings, or growth prospects.

Securities Fraud

Illegal practices involving the manipulation or misrepresentation of information related to investments, intended to deceive investors.

Misrepresenting Facts

The act of presenting false or misleading information intentionally or unintentionally, often to gain advantage or mislead others.

Puffery

Exaggerated or boasting statements made by sellers about the quality or performance of a product, generally considered legal and not actionable as fraud.