To Discourage Producing for Inventory,management Can

question 177

Multiple Choice

To discourage producing for inventory,management can:

• A)incorporate a carrying charge for inventory in the internal accounting system
• B)evaluate performance over a three- to five-year period rather than a single year
• C)evaluate non-financial measures such as units in ending inventory compared to units in sales
• D)All of these answers are correct.

---

Definitions:

Materials Price Variance

The difference between the actual cost of materials purchased and the expected (standard) cost times the actual quantity of materials used.

Direct Materials Purchases Variance

The difference between the budgeted cost of materials that should have been purchased for the production volume and the actual cost of materials purchased.

Variable Overhead

Costs that fluctuate with production levels, such as utility bills or raw material costs, that are not directly tied to manufacturing.

Materials Price Variance

The difference between the actual cost of raw materials and the standard (expected) cost, used to assess budgeting efficiency.