A Price Relative Was Computed for Houses

question 35

Multiple Choice

A price relative was computed for houses. The base period is 2005. The price relative in 2010 was 130. The interpretation of the price relative is that

• A)there has been a 130% increase in the price of houses from 2005 to 2010.
• B)there has been a 30% increase in the price of houses from 2005 to 2010.
• C)the price of houses in 2010 was $130 higher than the price in 2005.
• D)It is impossible to interpret the index.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of goods sold, treating fixed manufacturing overhead as an expense of the period in which it is incurred.

LIFO Inventory

A method of inventory valuation that assumes the last items placed in inventory are the first sold (Last In, First Out).

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Variable Costing

An accounting method in which variable manufacturing costs are included in product costs, while fixed manufacturing overhead is treated as an expense of the current period.