Multiple Choice
1. Under the perpetual inventory system, how is the Cost of Goods Sold (COGS) determined at the time of each sale compared to the periodic inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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A favorable direct materials quantity variance indicates which of the following?
A
The actual price paid for direct materials was less than the standard price.
B
The actual quantity of direct materials used was greater than the standard quantity allowed for actual production.
C
The actual quantity of direct materials used was less than the standard quantity allowed for actual production.
D
The standard cost of direct materials was higher than the actual cost.
Verified step by step guidance1
Understand the concept of a direct materials quantity variance: This variance measures the difference between the actual quantity of direct materials used in production and the standard quantity allowed for the actual production level.
Recognize that a favorable variance occurs when the actual quantity of direct materials used is less than the standard quantity allowed. This indicates efficiency in material usage during production.
Clarify that the variance does not directly relate to the price paid for materials or the standard cost of materials. These are addressed by the direct materials price variance, not the quantity variance.
Review the options provided in the problem and eliminate those that do not align with the definition of a favorable direct materials quantity variance. For example, the option about price paid for materials is irrelevant to quantity variance.
Conclude that the correct interpretation of a favorable direct materials quantity variance is: 'The actual quantity of direct materials used was less than the standard quantity allowed for actual production.'
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