Sherri Lives in Canada and Is Considering Buying a New

question 52

Multiple Choice

Sherri lives in Canada and is considering buying a new sofa. If the price level in Canada falls and the price level in the United States does not change, Canadian manufactured sofas are relatively

• A) less expensive, so Sherri will likely purchase a Canadian manufactured sofa.
• B) less expensive, so Sherri will likely purchase a U.S. manufactured sofa.
• C) more expensive, so Sherri will likely purchase a U.S. manufactured sofa.
• D) more expensive, so Sherri will likely purchase a Canadian manufactured sofa.
• E) Both answers B and D could be correct depending on whether U.S. manufactured sofas were initially more expensive or less expensive than Canadian sofas.

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted.

Segment Margin

The amount of profit or loss generated by a specific segment of a business, after deducting direct and allocated expenses attributable to that segment.

Common Fixed Expenses

Expenses that do not vary with the level of production or sales and are typically required to run a business, such as rent, salaries, and insurance.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of goods sold, treating fixed manufacturing overhead as a period cost.