When Jeff Bought a House He Also Bought Homeowners Insurance

question 34

Multiple Choice

When Jeff bought a house he also bought homeowners insurance, but when he bought a new dishwasher he refused to buy the repair insurance policy the store offered. Assuming Jeff is rational in his choices, which of the following is the most likely cause of his behavior?

• A)He switches back and forth between risk averse and risk loving preferences.
• B)He doesn't trust appliance insurers because they have no agent to relate to.
• C)The probability of his house burning is greater than the probability a dishwasher failure.
• D)The expected loss from dishwasher failure is less than the insurance premium and he can afford to absorb smaller losses.

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Definitions:

Single Plantwide Rate

A method of allocating overhead costs using one uniform overhead rate for an entire manufacturing plant.

Single Driver

A factor or variable that singularly influences or causes an effect in another variable or process within a system.

Sequential Method

A method for allocating costs or resources where the process follows a specific order or sequence, often used in complex costing situations.

ABC

Activity-Based Costing, a method of costing that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.