George's Dry Cleaning Is Considering a Merger with Weezzie's Laundry

question 62

Multiple Choice

George's Dry Cleaning is considering a merger with Weezzie's Laundry Supply Stores.George's total operating costs of producing services are $790,000 for sales volume (S_G) of $4.7 million.Weezzie's total operating costs of producing services are $202,000 for a sales volume (S_W) of $2.3 million.For a sales volume of $7 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 12 percent.

• A)$840,000
• B)$710,000
• C)$175,000
• D)$152,000

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Definitions:

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to individual units of production based on a specific activity, such as machine hours or labor hours.

Job-Order Costing System

A cost accounting system that assigns manufacturing costs to each product, allowing detailed tracking of expenditures.

Direct Labor-Hours

The total hours of labor work directly on manufacturing a product or providing a service, often used in costing and pricing decisions.

Milling Department

A section within a manufacturing facility where the process of grinding, cutting, pressing, or crushing materials occurs.