Calculation of Average Costs with Economies of Scope Jan's Bakery

question 47

Multiple Choice

Calculation of Average Costs with Economies of Scope Jan's Bakery is considering a merger with Tina's Cookies.Jan's total operating costs of producing services are $300,000 for a sales volume of $2 million.Tina's total operating costs of producing services are $75,000 for a sales volume of $600,000.If the two firms merge,calculate the total average cost for the merged firm assuming no synergies.

• A)12.5 percent
• B)11.54 percent
• C)14.42 percent
• D)13.75 percent

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to covering fixed costs and generating profit.

Fixed Costs

Costs that do not vary with production or sales levels, including rent, insurance, and salaries, which remain constant regardless of business activity levels.

Operating Income

The profit realized from a business's operations, calculated by subtracting operating expenses from gross profit.

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and insurance premiums.