The FSOJ Company Undertakes the Following Activities in Its Production

question 179

Multiple Choice

The FSOJ Company undertakes the following activities in its production operation and incurred the following costs during the first half of 20x2: Harvest apples $25,000
Prepare apples for processing 20,000
Extract juice from apples 18,000
Process juice into apple juice concentrate,
Apple juice or apple cider 30,000
Package completed products 9,000
Processing the juice into 3 final products involves the use of 2 machines, each of which incurred amortization costs of $15,000 for the first half of 20x2. Each product requires a different set up on the processing machines, so FSOJ normally sets up the machines to produce concentrate for the first week of each month. The machine is then set up to produce apple juice for the next 2 weeks. Finally, workers set up the same machines to produce apple cider during the last week of each month.
During the first half of 20x2, 20% of the apples harvested were turned into apple juice concentrate, 50% were processed into apple juice, and 30% became apple cider. The relative sales values of each product were: 75% for apple juice, 20% for apple juice concentrate, and 5% for apple cider. The apple juice concentrate operation takes up 40% of FSOJ's total factory space. Regular apple juice and apple cider occupy 35% and 25%, respectively.
If juice extraction costs are allocated to product lines based on relative sales values, that is, each product line's portion of total sales, the amount allocated to apple cider will be:

• A)$900
• B)$5,400
• C)$4,500
• D)None of the above

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Definitions:

Arbitrage

The practice of buying and selling the same asset in different markets to profit from price discrepancies without any risk.

Uniform Pricing

A strategy where a business charges the same price for a product or service in all markets regardless of local economic conditions.

Direct Price Discrimination

A strategy in pricing where the seller sets varying prices for the identical product or service, depending on how much each customer is prepared to pay.

High-End Wok

A premium quality cooking utensil designed for stir-frying and other cooking methods, often featuring superior materials and craftsmanship.