A Bakery Has a Choice of Leasing Different Types of Ovens

question 21

Multiple Choice

A bakery has a choice of leasing different types of ovens. Oven A will cost $1,000 per year to lease and operate, plus $0.50 per cake baked. Oven B will cost $3,000 per year to lease and operate, plus $0.40 per cake baked. Find the indifference point at which the annual costs of the two ovens are equal.

• A)200 cakes.
• B)20,000 cakes.
• C)40,000 cakes.
• D)None of these.

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Definitions:

Direct Labour Hour

A measure of labor directly involved in manufacturing or production, calculated by the amount of time workers spend on specific tasks.

Fixed Overhead

Costs that do not change with the level of production or sales activities, such as rent, salaries, and insurance.

Budget Variance

The difference between the budgeted or planned amounts and the actual amounts incurred.

Standard Cost

A predetermined cost of manufacturing a single unit or a number of product units during a specific period under normal conditions.