Nick Is Consideriog Buyiog a New Bicycle

question 27

Multiple Choice

Nick is consideriog buyiog a new bicycle.Here are his options: Bike A- costs $100.It has a 60% chance of breaking down in the next year.Bike B- costs $200.It has a 20% chance ofbreakiog down in the next year.Bike C- costs $400.It has a 15% chance ofbreakiog down in the next year.
Which bike should Nick purchase based on expected utility theory of repair costs?

• A)Bike A
• B)BikeB
• C)Bike C
• D)Either bike A or C
• E)We can't possibly answer the question with the ioformation provided.

---

Definitions:

Variable Overhead

Costs that fluctuate with the level of production activity, such as utilities for the manufacturing plant or commissions for sales staff.

Efficiency Variance

The difference between the actual amount of resources used in production and the amount that was expected to be used, indicating the level of efficiency in using materials, labor, and overhead.

Denominator Level

A term used in cost accounting to describe the level at which fixed costs are allocated to units of production.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products, calculated before the period begins based on estimated costs.