If an Insurance Company Underestimates the Number of High- Cost

question 131

Multiple Choice

If an insurance company underestimates the number of high- cost customers, it is likely to face_______ .

• A)moral hazard
• B)the bad apple problem
• C)adverse selection
• D)the principal- agent problem

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Definitions:

Underapplied Overhead

The amount by which the actual manufacturing overhead cost exceeds the applied overhead cost.

Job-Order Costing

Job-order costing is a costing method used to determine the cost of manufacturing each custom-made product or job, particularly effective for individual or special products.

Overapplied Overhead

A situation where the overhead allocated to products is more than the actual overhead incurred.

Job-Order Costing

A costing method that assigns manufacturing costs to each individual product or batch, ideal for custom or specialized goods.