In Questions a Firm Sells Its Product to Two

question 51

Multiple Choice

In Questions a firm sells its product to two groups of buyers: daytime buyers and nighttime buyers. There are 50 daytime buyers, all of whom have identical demands given by D_D in the figure below. There are 50 nighttime buyers, all of whom have identical demands given by D_N in the figure below. The firm's variable costs are constant (SMC = AVC = $12) and its total fixed cost is $250,000. The marketing director must devise a two-part pricing plan that will maximize the firm's profit.
-Assuming both daytime and nighttime markets are served, the optimal fixed access charge (A*) is

• A) A* = $1,472
• B) A* = $2,178
• C) A* = $3,872
• D) A* = $4,356
• E) A* = $7,744

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Definitions:

Equivalent Units

A concept in process costing that converts partially completed units into an equivalent number of fully completed units to measure output in a consistent way.

Process Costing System

An accounting method used to allocate costs to units of production in continuous processes, suitable for homogenous products.

Work In Process Inventory

The direct materials costs, the direct labor costs, and the applied factory overhead costs that have entered into the manufacturing process but are associated with products that have not been finished.

Work In Process Inventory

The value of unfinished goods in the production process at a given point in time.