David Sells His Car, Which He Considers Worthless, to Cameron

question 104

Multiple Choice

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?

• A) David and Cameron must have different preferences for the car.
• B) This trade did not create value because Cameron is buying a car that David considers worthless.
• C) Cameron is the only one made better off by the trade.
• D) David is made better off by the trade, but Cameron is made worse off.

Recognize the role of activity level changes in the variance analysis process.

Distinguish between variable and fixed costs in the context of budgeting and variance analysis.

Comprehend the process for calculating activity, revenue, and spending variances.

Analyze the impact of actual activity levels on budgeted costs and revenues.

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Definitions:

Machine-hours

An indicator of the duration for which equipment is utilized in the manufacturing process, commonly employed for distributing manufacturing overhead costs.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, indicating the potential profitability of products.

Net Operating Income

A measure of a company's profitability from its core business operations, excluding non-operating income and expenses.

Variable Expense Ratio

A measurement that indicates the proportion of variable expenses to sales, showing how costs change with sales volume.