A Consumer Has Been Buying 4 Magazines and 3 Books

question 128

Multiple Choice

A consumer has been buying 4 magazines and 3 books a month for many months. The price of magazines then decreases, which directly causes the marginal utility per dollar spent on

• A) magazines to increase, thereby inducing the consumer to purchase fewer magazines and more books.
• B) magazines to increase, thereby inducing the consumer to purchase more magazines and fewer books.
• C) books to increase, thereby inducing the consumer to purchase fewer magazines and more books.
• D) books to decrease, thereby inducing the consumer to purchase fewer magazines and more books.

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Definitions:

Volume Variance

The variance that arises whenever the standard hours allowed for the actual output of a period are different from the denominator activity level that was used to compute the predetermined overhead rate. It is computed by multiplying the fixed component of the predetermined overhead rate by the difference between the denominator hours and the standard hours allowed for the actual output.

Variable Manufacturing Overhead

Costs that fluctuate with production volume, such as indirect materials, indirect labor, and other expenses that increase or decrease as production levels change.

Fixed Manufacturing Overhead

Costs related to production that do not vary with the level of output, including salaries of permanent staff and rent of factory premises.

Budget Variance

The difference between the actual fixed overhead costs and the budgeted fixed overhead costs for the period.