Katie and Hugh Are Producing Pies and Jars of Pickles

question 115

Multiple Choice

Katie and Hugh are producing pies and jars of pickles.Katie can produce either 200 jars of pickles or 100 pies per month.Hugh can produce either 800 jars of pickles or 200 pies per month.Which of the following statements is correct?

• A)Katie's opportunity cost of producing 1 jar of pickles is 2 pies.
• B)Katie's opportunity cost of producing 1 jar of pickles is 1/2 of a pie.
• C)Hugh's opportunity cost of producing 1 jar of pickles is 4 pies.
• D)Hugh's opportunity cost of producing 1 pie is 1/4 jar of pickles.
• E)Hugh's and Katie's opportunity costs of producing are the same.

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Definitions:

Activity Rates

In activity-based costing, the cost allocation rate for each activity cost pool, allowing for more accurate product or service costing.

Customer Margin

The profit margin that is generated from a specific customer, calculated by subtracting the costs associated with serving that customer from the revenue earned from them.

Idle Capacity

Unused or underused production capacity within a business, often leading to inefficiency and increased costs.

Time-Driven Activity-Based Costing

A costing methodology that assigns costs to products or services based on the time resources are consumed in producing them.