The Standard Price and Quantity of Direct Materials Are Separated

question 39

Multiple Choice

The standard price and quantity of direct materials are separated because:

• A) GAAP reporting requires this separation
• B) direct materials prices are controlled by the purchasing department, and quantity used is controlled by the production department
• C) standard quantities are more difficult to estimate than standard prices
• D) standard prices change more frequently than standard quantities

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Definitions:

Variable Cost

A cost that changes in proportion with the level of output or activity; in contrast to fixed costs, which remain constant regardless of activity.

Transfer Price

The price at which goods or services are transferred between departments or divisions within the same company.

Increase in Income

A rise in the amount of money received, especially by a business or individual, over a certain period.

Variable Cost

A cost that varies with the level of output or production volume, such as materials and labor.