Calculation of Average Costs with Economies of Scope Dee's Dry

question 32

Multiple Choice

Calculation of Average Costs with Economies of Scope Dee's Dry Cleaning is considering a merger with Larry's Laundry Supply Stores. Dee's total operating costs of producing services are $600,000 for sales volume of $4 million. Larry's total operating costs of producing services are $200,000 for a sales volume (J_P) of $1 million. Calculate the average cost of production for the Dee's and Larry's firms, respectively.

• A) 15%, 20%
• B) 20%, 15%
• C) 16%, 16%
• D) 60%, 5%

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Definitions:

Debit Side

The left side of an accounting ledger where increases in assets and expenses or decreases in liabilities and equity are recorded.

Normal Balance

The side of an account (debit or credit) where increases in the account are recorded, reflecting the account's usual positive balance.

Expense

Outflows or other using up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.

Credit

A bookkeeping entry that increases the value of liabilities or equity accounts, or decreases the value of an asset or expense account.