If Materials Are Carried in the Direct Materials Inventory Account

question 4

Multiple Choice

If materials are carried in the direct materials inventory account at standard cost, then it is reasonable to assume that the:

• A) raw materials inventory account is understated.
• B) price variance is recognized when materials are purchased.
• C) company does not follow generally accepted accounting principles.
• D) price variance is recognized when materials are placed into production.

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Definitions:

Interest Payment

A payment made to a lender by a borrower in exchange for the use of borrowed money, typically calculated as a percentage of the principal.

Accumulated Depreciation

The cumulative depreciation of an asset up to a single point in its life, reflecting the asset's loss in value due to wear and tear, age, or obsolescence.

Operating Activities

The cash flows related to the core operations of a business, including revenues and expenses.

Indirect Method

The indirect method is a technique used in financial accounting to prepare the cash flow statement, where net income is adjusted for non-cash transactions and changes in working capital to find net cash from operating activities.