The Purchasing Manager Was Able to Bring Down the Cost

question 158

Multiple Choice

The purchasing manager was able to bring down the cost of direct materials by purchasing direct materials of a slightly lower grade quality than the company had used previously.The lower grade of direct materials,however,meant a higher defect rate on the assembly line and a higher waste of direct materials during production,which in turn lowered operating income.This situation would lead to a(n) ________.

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

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers matches the quantity supplied by producers, resulting in no surplus or shortage.

Market Price

The actual selling price of a good or service in the market at which it can be bought or sold.

Surplus

The amount by which quantity supplied exceeds quantity demanded, often resulting in excess goods and a decrease in prices.

Shortage

A situation in which demand for a good or service exceeds its supply in a market.