As the Price of Oil Goes Up, What Happens to the Incentive

question 134

Multiple Choice

As the price of oil goes up, what happens to the incentive to develop alternative fuels?

• A) It increases.
• B) It decreases.
• C) Nothing happens.
• D) It is impossible to say without more information.

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Definitions:

Manufacturing Cost

The total cost involved in making a product, including direct materials, direct labor, and manufacturing overhead.

Fixed Manufacturing Overhead

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance of a manufacturing facility.

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or job orders, based on estimated costs and activity levels.

Manufacturing Overhead

All manufacturing costs that are not directly attributable to a specific product, including indirect labor, maintenance, and utilities.