Why Can Changes in the Producer Price Index (PPI)predict Changes

question 143

Multiple Choice

Why can changes in the producer price index (PPI) predict changes in the consumer price index (CPI) ?

• A)They are computed using the same market basket.
• B)Consumers and producers often buy the same goods.
• C)Producers often pass along price increases to consumers.
• D)Consumers pay what retailers charge.

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Definitions:

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a specific activity base.

Manufacturing Overhead

Indirect costs related to manufacturing, such as utilities, maintenance, and salaries for managers, not directly involved in production.

Variable Manufacturing Overhead

Costs in the production process that vary with the level of output, such as utilities for machinery.

Fixed Manufacturing Overhead

The total of all costs that remain constant regardless of the level of production or sales, in the context of manufacturing operations.