Fred Just Purchased an Expensive New Refrigerator and Is Considering

question 168

Multiple Choice

Fred just purchased an expensive new refrigerator and is considering purchasing the overpriced warranty. In making his decision on the warranty, Fred ignores better ways that his money could be spent, including paying off high-interest credit card debt. According to prospect theory, the process that leads Fred to ignore the debt and buy the overpriced warranty is

• A)framing bias.
• B)anchoring.
• C)mental accounting.
• D)confirmation bias.

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Definitions:

Accounting Period

A specific period of time covered by accounting records and financial statements, usually a year or a quarter, used to measure financial performance.

Manufacturing Costs

Refers to the total expense incurred in the process of producing goods, including materials, labor, and overhead costs.

Direct Labour Costs

Expenses directly tied to the production of goods or services, including wages of workers physically making a product.

Individual Jobs

Specific, unique production tasks or orders customized to meet particular customer requirements.