Calculation of Average Costs with Economies of Scope Crib World

question 57

Multiple Choice

Calculation of Average Costs with Economies of Scope Crib World is considering a merger with Tots Supply Stores. Crib's total operating costs of producing services are $250,000 for sales volume of $1.25 million. Tots' total operating costs of producing services are $210,000 for a sales volume (J_P) of $900,000. Calculate the average cost of production for the Crib and Tots firms, respectively.

• A) 20%, 23.33%
• B) 23.33%, 20%
• C) 27.78%, 16.8%
• D) 21.4%, 21.4%

---

Definitions:

Cash Payback Period

The amount of time it takes for an investment to generate enough cash flow to recover its initial cost.

Present Value Factor

A factor used in calculating the present value of a future cash flow, discounting its value to reflect time and risk.

Internal Rate of Return Method

A capital budgeting technique used to evaluate the profitability of investments or projects, determining the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Present Value Concepts

Financial principles that determine the current worth of a future sum of money or stream of cash flows, given a specified rate of return.