Aqua Company Produces Two Products-Alpha and Beta

question 14

Multiple Choice

Aqua Company produces two products-Alpha and Beta. Alpha has a high market share and is produced in bulk. Production of Beta is based on customer orders and is custom designed. Also, 55% of Beta's cost is shared between design and setup costs, while Alpha's major portions of costs are direct costs. Alpha is using a single cost pool to allocate indirect costs. Which of the following statements is true of Aqua?

• A) Aqua will overcost Beta's direct costs as it is using a single cost pool to allocate indirect costs.
• B) Aqua will undercost Alpha's indirect costs because alpha has high direct costs.
• C) Aqua will overcost Alpha's indirect costs as it is using a single cost pool to allocate indirect costs.
• D) Aqua will overcost Beta's indirect costs because beta has high indirect costs.

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Definitions:

Total Surplus

The combination of consumer and producer surplus in a market, symbolizing the overall net advantage to society derived from the creation and usage of a product or service.

Total Surplus

The sum of consumer and producer surplus, representing the total net benefit to society from the production and consumption of a good or service.

Deadweight Loss

A societal expense caused by disruptions in the marketplace, happening when there's a discrepancy between supply and demand levels.

Free-Trade Policy

A policy to eliminate import/export restrictions or tariffs among countries, facilitating a more free flow of goods and services across borders.