Table 11-2 Consider a Small Town with Only Three Families, the Greene

question 225

Multiple Choice

Table 11-2
Consider a small town with only three families, the Greene family, the Brown family, and the Black family. The town does not currently have any streetlights so it is very dark at night. The three families are considering putting in streetlights on Main Street and are trying to determine how many lights to install. The table below shows each family's willingness to pay for each streetlight.
-Refer to Table 11-2. Suppose the cost to install each streetlight is $900 and the families have agreed to split the cost of installing the streetlights equally. If the residents choose to install the number of streetlights that will maximize total surplus from the streetlights, how much total surplus will the Greene family receive?

• A)-$40
• B)$0
• C)$40
• D)$60

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Definitions:

Activity Cost Pool

A grouping of individual costs based on the activities that drive those costs, used in activity-based costing.

Direct Labor Rate

The cost per hour for labor directly involved in manufacturing a product or providing a service.

Direct Materials Cost

The cost of raw materials that are directly used in the manufacture of a product and are easily traceable to it.

Total Overhead Applied

The total amount of manufacturing overhead costs allocated to individual jobs or products based on a predetermined overhead rate.