Pamela in Bamplona Makes Bull-Repellent Scent According to a Traditional

question 7

Multiple Choice

Pamela in Bamplona makes bull-repellent scent according to a traditional Spanish recipe,which normally sells at €9 (Euros) per unit.Normal production volume is 10,000 ounces per month.Average cost is €5 per ounce,of which €2 is direct material and €1 is variable conversion cost.This product is seasonal.After July,demand for this product drops to 6,000 ounces monthly.In November,Umberto offers to buy 1,800 ounces for €8,100. If Pamela accepts the order,she must design a special label for Umberto at a cost of €800.Each label will cost 30 cents to make and apply.Pamela should:

• A)accept the order,at a gain of €625
• B)reject the order,at a loss of €1,875
• C)reject the order,at a loss of €2,375
• D)accept the order,at a gain of €1,360
• E)reject the order,the new selling price is less than the average cost per ounce

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Definitions:

Efficiency Loss

The loss of economic efficiency that occurs when the optimal allocation of resources is not achieved, often due to market failures or externalities.

Health Insurance

An insurance policy that covers or reimburses the policyholder for their medical and surgical costs resulting from sickness or injury.

Efficiency Loss

The economic cost arising when market transactions do not allocate resources in the most beneficial way for society, often manifesting in deadweight loss.

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured or provides reimbursement for such expenses.