Howard Company Has Two Support Departments (S1 and S2) and Two

question 99

Multiple Choice

Howard Company has two support departments (S1 and S2) and two producing departments (P1 and P2) . Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are allocated on the basis of space occupied expressed in square feet.
Data on direct department costs, number of employees, and space occupied are as follows: $\begin{array}{lrrrr}&S1&S2&P1&P2\\\text { Direct dept. costs } & \$ 7,500 & \$ 11,000 & \$ 27,500 & \$ 30,000 \\\text { Number of employees } & 10 & 5 & 20 & 25 \\\text { Space occupied (sq. ft.) } & 1,000 & 500 & 1,500 & 2,500\end{array}$
If Howard used the reciprocal method, the algebraic equation expressing the total costs allocated from S1 is

• A)S1 = $7,500 + 0.10S2.
• B)S1 = $7,500 + 0.20S2.
• C)S1 = $10,000 + 0.20S2.
• D)S1 = $10,000 + 0.10S2.

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Definitions:

Perfect Competitor

A theoretical market structure in which many firms sell an identical product, and no single buyer or seller can influence the market price.

Perfectly Competitive Industry

A market structure where many firms sell identical products, entry and exit are easy, and no single buyer or seller can affect the market price.

Economic Profits

Profits exceeding the next best alternative use of resources, considered abnormally high in economic terms.

ATC Curve

The Average Total Cost (ATC) curve is a graphical representation showing how the average total costs of production for a firm change as the quantity of output produced changes.