Multiple Choice Questions:

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

A) Favorable direct materials cost variance.

B) Unfavorable direct labor cost variance.

C) Unfavorable direct labor efficiency variance.

D) Favorable direct materials efficiency variance.

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

A) Unfavorable direct materials cost variance.

B) Favorable direct labor cost variance.

C) Unfavorable direct labor efficiency variance.

D) Unfavorable direct materials efficiency variance.

3) The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with her factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This situation would have produced 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.

4) The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with her factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This situation would have produced a (n):

A) Favorable direct materials cost variance.

B) Unfavorable direct labor cost variance.

C) Unfavorable direct labor efficiency variance.

D) Favorable direct materials efficiency variance.

5) The production manager of a company was experiencing a high defect rate on the assembly line, which was slowing production and causing wastage of valuable materials. He decided to purchase a higher grade of material that would be more reliable, but he was worried that the cost of the new material might negatively affect operating income. This situation would have produced 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.