Scenario 16.4 - Santorini Donkeys

question 4

Multiple Choice

Scenario 16.4 - Santorini Donkeys
Sturdy little donkeys are used to carry corpulent tourists up the Santorini caldera to the town of Fira. One cruise line that routinely docks at the port is considering a plan to maintain their own donkey herd, which will cost them $15,000 per thousand tourists. The number of tourists needing this service is normally distributed, with a mean of Usually, this is enough donkey capacity, but occasionally the cruise line rotates a bigger ship through this route and the excursion director must purchase donkey capacity on the spot market, where is costs $20 per tourist.
-The cruise line's insurance policy limits the number of donkeys in their herd to 5,000. What bulk price should the cruise line negotiate to make the 5,000 donkey herd size optimal?

• A) $18,586 per ten thousand
• B) $18,362 per ten thousand
• C) $18,134 per ten thousand
• D) $17,978 per ten thousand

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Definitions:

Variable Overhead

Costs of production that vary directly with the volume of output, such as utilities and labor efficiency.

Direct Labor-Hours

The total hours worked by employees directly involved in manufacturing products, used as a basis for assigning labor costs to those products.

Manufacturing Overhead

All indirect costs associated with manufacturing, including costs for indirect labor, materials, and factory operations, that are not directly traceable to specific products.

Direct Materials

Direct materials refer to the raw materials that become an integral part of the finished product and can be easily traced back to it.