The Production Manager of a Company Was Experiencing a High

question 103

Multiple Choice

The production manager of a company was experiencing a high defect rate on the assembly line, which was slowing production and causing wastage of valuable materials. He decided to recruit some highly skilled production workers from another company to bring down the defect rate, but was worried that the higher wages of these workers might negatively affect operating income. This situation would have produced a(n) :

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

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Definitions:

Contribution Margin

The contribution margin is the amount by which the sales revenue of a product or service exceeds its variable costs, indicating how much contributes to covering fixed costs and generating profit.

Selling Price

The amount of money customers pay for a product or service.

CVP Model Assumptions

Assumptions underlying the Cost-Volume-Profit analysis, including constant unit selling prices, variable costs per unit, and total fixed costs.

Product Mix

The variety of products a company offers to its customers, encompassing breadth, depth, and diversity of the product lines.