Question 45

Price of A increases and B decreases

The shift in overhead costs indicates that the cost structure for Product A has become more expensive, likely necessitating an increase in its selling price. Conversely, as the overhead for Product B has decreased, it is probable that the selling price for Product B may decrease to remain competitive.

A) Price of A decreases and B increases

This option is incorrect because it suggests that the price of Product A would decrease despite an increase in its overhead costs. Typically, higher costs lead to higher prices, not lower, which contradicts the information given.

B) Neither price changes

This option is also incorrect as it implies that the changes in overhead costs for both products have no impact on their selling prices. Given that Product A's costs have risen and Product B's have fallen, some adjustment in prices is expected.

C) Both prices increase

This option is incorrect because while Product A's price may indeed need to increase due to higher overhead, Product B's price is likely to decrease due to reduced overhead. Therefore, both prices cannot increase simultaneously based on the provided context.

D) Price of A increases and B decreases

This option is correct as it aligns with the changes in overhead costs. The increase in overhead for Product A suggests that its selling price will need to rise, while the decrease in overhead for Product B likely allows for a reduction in its selling price to attract more customers.

Conclusion

The correct answer, D, reflects the logical relationship between overhead costs and pricing strategies. Increased costs typically lead to higher selling prices, while decreased costs can allow for lower prices. This direct correlation clarifies why the other options fail to accurately represent the effects of the changes in overhead on selling prices.