Suppose That the Cost of Capturing a Cockatoo and Transporting

question 22

Multiple Choice

Suppose that the cost of capturing a cockatoo and transporting him to the United States is about $40 per bird.Cockatoos are drugged and smuggled in suitcases to the United States.Half of the smuggled cockatoos die in transit.Each smuggled cockatoo has a 10% probability of being discovered, in which case the smuggler is fined.If the fine imposed for each smuggled cockatoo is increased to $700, then the equilibrium price of cockatoos in the United States will be

• A)$61.
• B)$244.44.
• C)$75.
• D)$110.
• E)$155.56.

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Definitions:

Labour Efficiency Variance

It measures the effectiveness of labor usage by comparing the budgeted hours for a set level of production against the actual hours worked, indicating efficiency or inefficiency in labor use.

Static Budget

A budget that does not change or adjust over the period, established at the start of a period and based on a fixed level of activity.

Standard Costing

A cost accounting system that assigns a fixed cost to inventory with the variance analyzed to improve cost control and management decisions.

Labour Efficiency Variance

The difference between the actual hours worked and the standard hours expected to be worked, multiplied by the standard labor rate.