Suppose the Price of Oil Is Falling Due to a Drop-Off

question 15

Essay

Suppose the price of oil is falling due to a drop-off in demand after the summer driving season. Explain what a group of oil- producing nations (like OPEC), that control a significant amount of the world's oil supplies, could do in order to keep prices (and hence profits) high.
B. OPEC nations would want to decrease the supply of oil on world markets, since a decrease in supply would lead to an increase in the price of oil.

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Definitions:

Departmental Predetermined

A rate calculated at the start of the accounting period, used to allocate overhead costs to products based on department-specific criteria.

Overhead Rate

A measure used to calculate how much overhead cost should be allocated to each unit of production, often based on direct labor hours or machine hours.

Assembly Department

A division within a manufacturing facility where parts are put together to form a finished product.

Machine-Hours

A measure used in costing to allocate expenses based on the number of hours a machine is operated.