The Purchasing Manager Was Able to Bring Down the Cost

question 114

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 higher wastage of direct materials during production,which in turn lowered operating income.This would have led to 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:

Long-Run Aggregate Supply Curve

This curve shows the relationship between the overall price level and the total output produced in an economy when wages and resource prices fully adjust to changes, reflecting an economy’s maximum sustainable output level.

Potential Output

A measure of the highest level of economic output an economy can sustain over a period without increasing inflation; synonymous with potential GDP.

Negotiable

Referring to something that can be discussed or altered through negotiation, such as terms of a contract or a financial instrument.

Expansionary Gap

A situation where the total demand in an economy exceeds its potential output, leading to inflationary pressures.