Cindy's Computer Corp

question 29

Multiple Choice

Cindy's Computer Corp. is considering a merger with Bobby's Hard Drive, Inc. Cindy's total operating costs of producing services are $2.1 million for a sales volume (S_C) of $13 million. Bobby's total operating costs of producing services are $2.5 million for a sales volume (S_B) of $7 million. If the two firms merge, calculate the total average cost (TAC) for the merged firm assuming no synergies.

• A) 23%
• B) 17%
• C) 19%
• D) 21%

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Definitions:

Activity Measure

An activity measure is a metric used in activity-based costing to gauge the amount of activity consumed by a cost object, assisting in the more accurate allotment of overhead costs.

Traditional Cost System

A costing method that allocates overhead costs based on a single volume-based cost driver, such as labor hours or machine hours.

Purchase Order

A document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services.

Batch-level Activity

Refers to tasks that are performed each time a batch is processed, affecting multiple units of product but not directly correlated to each individual unit.