Carla Insures Her Residence for $300,000 When It Is in Fact

question 16

Multiple Choice

Carla insures her residence for $300,000 when it is in fact worth $500,000.If the contract contains a 'subject to average' clause and a fire causes $100,000 worth of damage,how much is the insurer obliged to pay?

• A)$75,000.
• B)$60,000.
• C)$100,000.
• D)$80,000.

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Definitions:

Depreciation Expenses

The systematic allocation of the depreciable amount of an asset over its useful life to account for wear and tear, obsolescence, or decay.

Equivalent Units

A concept in cost accounting used to express the amount of work done by incomplete units in terms of fully completed units.

Average Cost Method

An inventory costing method that determines the cost of goods sold and ending inventory based on the average cost of all similar items available during the period.

Milling Blanks

The process of machining raw materials into a preliminary shape before further processing.