Globe Inc Is a Distributor of DVDs

question 56

Multiple Choice

Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases DVDs from Globe at $28.00 per DVD; DVDs are shipped in packages of 68. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 321,000 DVDs at a rate of 6100 DVDs per week. DVD Mart earns 11% on its cash investments. The purchase-order lead time is one week. The following cost data are available:

What are the relevant total costs?

• A) $18,758
• B) $84,917
• C) $15,471
• D) $13,124

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Definitions:

Actual Output

The real production volume or amount of work done, as opposed to planned or theoretical outputs.

Manufacturing Overhead

Costs that are incurred in the manufacturing process other than direct materials and direct labor, such as utilities, depreciation, and maintenance of equipment.

Denominator Activity Levels

Denominator activity levels refer to the levels of activity used to allocate fixed costs to products or services under activity-based costing or other costing methodologies.

Efficiency Variances

The difference between the actual amount of resources used in production and the standard amount expected, showing how efficiently resources are being used.