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

question 12

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.For a sales volume of $5 million,calculate the reduction in production costs the merged firms need to experience such that the total average cost (TAC) for the merged firms is equal to 10 percent.

• A)Decrease of $500,000
• B)Decrease of $300,000
• C)Decrease of $100,000
• D)Decrease of $200,000

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Definitions:

Finished Goods Inventory

The total value of all completed products that are ready for sale at the end of an accounting period, part of a company's current assets.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including the cost of the materials and labor directly used to create the good.

Material

Substantial or significant; in accounting, referring to an amount that would influence the decision of an informed user.

Labor

The human effort (physical or mental) contributed to the production of goods and services.