Calculation of Average Costs with Economies of Scope Crib World

question 58

Multiple Choice

Calculation of Average Costs with Economies of Scope Crib World is considering a merger with Tots Supply Stores.Crib's total operating costs of producing services are $250,000 for sales volume of $1.25 million.Tots' total operating costs of producing services are $210,000 for a sales volume (J_P) of $900,000.For a sales volume of $2.15 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 17.5 percent.

• A)Decrease of $376,250
• B)Decrease of $83,750
• C)Decrease of $127,500
• D)Decrease of $87,500

---

Definitions:

Adjusting Entries

Adjusting entries are journal entries made at the end of an accounting period to update the accounts and ensure they reflect the true financial status of a company.

Prepaid Insurance

Prepaid insurance represents payments made for insurance coverage periods that have not yet occurred, and is recorded as an asset on the company's balance sheet.

Insurance Expense

The cost associated with purchasing insurance policies to protect a business from certain risks, recorded as an expense.

Adjusting Entry

Adjusting entries are journal entries made in accounting to update ledger accounts at the end of a reporting period, ensuring that revenues and expenses are recognized in the period they occur.