In the Baumol Model, Increases in the T-Bill Rate Suggest

question 44

Multiple Choice

In the Baumol model, increases in the T-bill rate suggest that:

• A)average cash balances should be increased.
• B)average cash balances should be decreased.
• C)the cost per sale of securities will increase.
• D)fewer sales should be conducted each year.

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Definitions:

Warranty Expense

This is an accounting term for the cost that a company anticipates or incurs due to the repair or replacement of products under warranty.

Sales Units

The quantity or number of products sold or services rendered by a business during a specific period.

Product Warranty Payable

A liability account that records the estimated amounts a company expects to pay for warranties on products it has sold.

Product Warranty Expense

Costs associated with the repair or replacement of faulty products that have been sold, under the terms of a product warranty.