If the Producer of a Product Has Entered into a Fixed

question 50

Multiple Choice

If the producer of a product has entered into a fixed price sale agreement for that output, the producer faces:

• A)a nice steady profit because the output price is fixed.
• B)an uncertain profit if the input prices are volatile.This risk can be reduced by a short hedge.
• C)an uncertain profit if the input prices are volatile.This risk can be reduced by a long hedge.
• D)a modest profit if the input prices are stable.This risk can be reduced by a long hedge.
• E)a modest profit if the input prices are stable.This risk can be reduced by a short hedge.

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Definitions:

Reciprocal Services Method

An approach used to allocate costs between different departments within a company that provide services to each other, maintaining a balanced internal economy.

Support Department Costs

Expenses incurred by departments that do not directly generate revenue but support those that do.

Production Departments

Divisions or areas within a manufacturing facility where specific types of products or components are produced.

Multiple Production Department Rates

A method of applying overhead to products in which overhead costs are first directly traced or distributed to support and production departments.