The Fact That Some Resource Prices Are Fixed by Contracts

question 93

Multiple Choice

The fact that some resource prices are fixed by contracts helps explain why firms _____

• A) increase output in the short run when the price level increases.
• B) keep production levels constant in the short run when the price level decreases.
• C) sell output in the short run at fixed prices.
• D) increase output in the long run when the price level increases.
• E) decrease production when nominal wages fall in the long run.

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Definitions:

Fixed Overhead Rate

A set rate used to allocate fixed indirect costs of production to individual units or activity bases.

Total Overhead Variance

The difference between the actual overhead costs incurred and the standard overhead costs allocated for a particular period, used for budgeting and cost control purposes.

Overhead Controllable Variance

The difference between actual overhead expenses incurred and the budgeted or expected overhead costs that can be managed or controlled.

Standard Hours Allowed

The predetermined amount of time expected to be taken to complete a specific task or job under normal conditions.