The Reason a Warranty on a Used Car Communicates Credible

question 108

Multiple Choice

The reason a warranty on a used car communicates credible information is that

• A) everyone offers one.
• B) it indicates the car is of below-average quality.
• C) only those cars that are of better-than-average quality will have warranties.
• D) it indicates the car is of average quality.
• E) it may not be honoured.

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Definitions:

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that remains constant regardless of the level of production or sales volume.

Manufacturing Overhead Budget

An estimation of all manufacturing costs, excluding direct materials and direct labor, planned for a specific period.

Direct Labor-Hours

The cumulative hours that employees engaged in the manufacturing process have completed.

Variable Overhead Rate

The portion of overhead costs that varies directly with production volume, calculated as variable overhead costs divided by a certain measure of activity (e.g., labor hours or machine hours).