Michael Chang Buys Only Tennis Rackets During a Particular Year

question 69

Multiple Choice

Michael Chang buys only tennis rackets during a particular year.During the year in question,the price of all goods rises by 10 percent on average,but the price of tennis rackets remains the same.Which statement is correct?

• A) Michael benefits from inflation.
• B) Michael does not experience inflation because he only buys tennis rackets.
• C) No matter what Michael buys,he experiences inflation.
• D) Michael does not benefit from inflation.
• E) We can't conclude anything from the information given.

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Definitions:

Variable Costing Approach

An accounting method that considers only variable costs as product costs and all fixed costs as period costs, affecting inventory valuation and profitability.

Absorption Cost Approach

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.

Fixed Costs

Expenses that do not change with the level of production or sales activities, such as rent, salaries, and insurance.

Net Income

The company's net income following the deduction of all expenses and taxes from its total revenue.