Suppose That in 2010, OPEC Succeeds in Raising World Oil

question 14

Multiple Choice

Suppose that in 2010, OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed, and it is cheaper to operate than gasoline engines. Which of the following problems in the construction of the CPI would this situation represent?

• A)substitution bias and introduction of new goods
• B)introduction of new goods and unmeasured quality change
• C)unmeasured quality change and new goods
• D)income bias and substitution bias

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Definitions:

Standard Cost System

An accounting system that uses cost estimates for materials, labor, and overhead to control costs and assess operational efficiency.

Fixed Manufacturing Overhead

Payments that remain unchanged no matter the volume of production or sales, including rents, staff remuneration, and insurance agreements.

Work in Process Inventories

Goods that are in the production process but have not yet been completed.

Fixed Overhead Budget Variance

The difference between the actual fixed overhead costs incurred and the budgeted or expected fixed overhead costs.