Spot Markets Are an INEFFICIENT Way for the Firm to Purchase

question 146

Multiple Choice

Spot markets are an INEFFICIENT way for the firm to purchase inputs if:

• A) opportunism is a problem.
• B) suppliers engage in hold-up.
• C) profit sharing is used to compensate managers.
• D) opportunism is a problem and suppliers engage in hold-up.

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Definitions:

Actual Costs

The real costs incurred in the production of goods or provision of services, as opposed to estimated or standard costs.

Direct Materials Price Variance

The difference between the actual cost of direct materials used in production and the standard cost, multiplied by the actual quantity of materials used.

Direct Labor Rate Variance

The difference between the actual cost of direct labor and the expected (or standard) cost, used in variance analysis to control labor costs.

Direct Materials Cost Variance

The difference between the budgeted cost of materials for products and the actual cost incurred.