In the Automobile Industry, Workers Have Just Negotiated a New

question 74

Multiple Choice

In the automobile industry, workers have just negotiated a new contract giving workers a large raise. There has also been an increase in the number of licensed drivers who are in the market for a new car. In the market for new automobiles, the effects that these changes will have on the equilibrium price and quantity are

• A) price will increase, and quantity will decrease.
• B) price will increase, and the effect on quantity is indeterminate.
• C) price will decrease, and quantity will increase.
• D) price will decrease, and the effect on quantity is indeterminate.

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Definitions:

Traditional Costing System

A costing method that allocates factory overhead to products based on volume metrics such as machine hours or labor hours, often not capturing the true costs of complex manufacturing processes.

Product Costs

Expenditures directly tied to the creation of a product, including direct materials, direct labor, and manufacturing overhead.

Complex Products

Products that have multiple components, intricate features, or require advanced technology for production, often requiring specialized knowledge to design, manufacture, and use.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to related products and services based on the activities they require.