Reference: Ref 7-4 (Table: the HP Stock Exchange) the HP

question 115

Multiple Choice

Reference: Ref 7-4 (Table: The HP Stock Exchange) The HP Stock Exchange lets members of HP's sales team buy and sell shares that pay off when sales fall within a certain range. A typical security would pay out $1, if and only if future sales fell within the specific range of that share. Accordingly, the trading price given in the table between 30,000 15,000 and 20,000 units implies that:

• A) price per unit of sales is $0.40 if the sales ranges between 15,000 and 25,000 units.
• B) price per unit of sales will increase at $0.40 per unit for sales between 15,000 and 20,000 units.
• C) the probability of selling between 15,000 and 20,000 units is believed to be 40 percent.
• D) the probability of selling between 15,000 and 20,000 is believed to be at least 40 percent.

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Definitions:

Support Department Costs

The costs associated with functions that assist the direct production or service departments of an organization, such as maintenance and administration.

Overhead Rates

The ratio used to allocate indirect costs to products or services, typically based on a measure such as labor hours or machine hours.

Personnel Costs

Expenses related to the compensation and benefits of employees, including wages, salaries, bonuses, and fringe benefits.

Volume-based Cost Driver

A factor that causes the cost of an activity or resource to increase, directly related to the volume of production or service delivery.