Use the Following to Answer Questions

question 222

Multiple Choice

Use the following to answer questions:
Figure: Kristin's Budget Line
-(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially consumes 10 cups of cappuccino and 30 apples. Then the price of apples increases to $3 each and the price of a cappuccino remains unchanged. As a result of this price change, Kristin's optimal consumption bundle changes, reflected by a decrease in the consumption of both apples and cappuccinos. This suggests that:

• A) apples are a Giffen good.
• B) cappuccino is a Giffen good.
• C) both apples and cappuccino are normal goods.
• D) apples are an inferior good.

---

Definitions:

Variable Overhead Spending Variance

The difference between the actual variable overhead incurred and the standard variable overhead allocated to the actual production achieved.

Fixed Overhead Volume Variances

The difference between the budgeted and actual fixed overhead expenses, attributed to changes in production volume.

Standard Cost Data

Predetermined costs for materials, labor, and overhead that are used to measure and control actual production costs.

Capacity Percentage

A measure of the amount of productive capacity being used by a facility or entity, often expressed as a percentage.