A Company Has Two Manufacturing Facilities: One in Alberta That

question 47

Multiple Choice

A company has two manufacturing facilities: one in Alberta that produces a bulk chemical that it sells to many different retailers, and one facility in Ontario that is dedicated to producing a specialty chemical for one client only.The annual profit from the single client is $150,000; and, the profit from the other facility's sales is $1,500,000, after allocating combined fixed costs based on units produced.Another company has offered to lease the Ontario facilities for $250,000.Which of the following is TRUE?

• A)The $250,000 is an opportunity cost of continuing to use the Ontario plant.
• B)The company incurred a $250,000 opportunity cost for the past years, but this was not recorded on its books.
• C)The company needs to determine the contribution margin for each product before making any decision.
• D)Incremental revenues exceed total costs if the plant is rented.
• E)Incremental costs exceed incremental revenues if the plant is rented.

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Definitions:

Coefficient Of Correlation

A statistical metric that assesses the intensity of the association between the relative changes of two variables.

Regression Equation

An equation that describes the relationship between independent variables and a dependent variable, often used to predict the latter from the former.

SSE

Stands for Sum of Squared Errors, a measure of the variation or dispersion of data points around a regression line or mean.

SST

Often refers to the Total Sum of Squares, which is a measure used in statistical analysis to quantify the variation within a set of observations.