Calculation of Average Costs with Economies of Scope Building Supplies

question 95

Multiple Choice

Calculation of Average Costs with Economies of Scope Building Supplies is considering a merger with Tools and More. Building's total operating costs of producing services are $4 million for a sales volume of $20 million. Tools' total operating costs of producing services are $1 million for a sales volume of $5 million. Suppose that synergies in the production process result in a cost of production for the merged firms totaling $4.8 million with total sales remaining unchanged. Calculate the total average cost for the merged firm.

• A) 9.6%
• B) 40.0%
• C) 19.2%
• D) 20.0%

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Definitions:

Bond Liability

The amount owed by an entity to bondholders, including the principal and any unpaid interest.

Par

The nominal or face value of a bond, share, or other financial instrument, typically the value at which it is issued.

Bond Interest

The amount of interest paid by bond issuers to bondholders, typically expressed as an annual percentage of the bond's face value.

Interest Payment Date

The specific dates on which interest payments on a bond or loan are made to bondholders or lenders.