Lou and Toby Both Live in a Little Town and Are

question 29

Multiple Choice

Lou and Toby both live in a little town and are trying to sell their cars. Both of their cars have a blue book value of $10,000. Lou has an American car like most of the people in town own. Toby owns the only Bulgarian car in town. If people in their town are risk averse, then who will get closest to the blue book value for his car?

• A)Lou will because American cars are better than Bulgarian cars.
• B)Toby will because there is less uncertainty about the quality of Lou's car.
• C)Lou will because there is less uncertainty about the quality of Lou's car.
• D)Both should get the same price for their cars because both cars have the same blue book value.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and constitute a significant portion of the product’s cost.

Direct Labour

The wages of workers or employees who are directly involved in the production of goods or the delivery of services.

Variable Overhead Efficiency Variance

The difference between the actual variable overhead incurred and the expected (standard) variable overhead based on the efficient usage of manufacturing resources.

Direct Material Used

The raw materials that are directly included in the finished product, easily traceable to specific goods or batches of goods.