The Machining Division Has a Capacity of 2,000 Units

question 29

Multiple Choice

The Machining Division has a capacity of 2,000 units. Its sales and cost data are: Selling price per unit $100
Variable manufacturing costs per unit $25
Variable administrative costs per unit $5
Total fixed manufacturing overhead $20,000
Total fixed administrative costs $5,000
Return on Investment is:

• A)The same as residual income
• B)Net operating income divided by average operating assets
• C)A nonfinancial measure of performance
• D)Net operating income minus average operating assets X cost of capital

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Definitions:

Classical Dichotomy

The theoretical separation of nominal and real variables in the economy, suggesting that changes in the money supply only affect nominal variables and not real variables like output.

Monetary Neutrality

The economic theory suggesting that changes in the money supply only affect nominal variables and have no long-term effect on real variables such as output or employment.

Long-Run Aggregate-Supply Curve

The long-run aggregate-supply curve represents the total production of goods and services in an economy at different price levels, assuming all resources are fully utilized.

Misperceptions Theory

A theory suggesting that individuals' misperceptions about economic conditions can lead to fluctuations in economic output and employment.