A Firm Produces and Sells Two Products, Mica and Plax

question 68

Multiple Choice

A firm produces and sells two products, Mica and Plax. The following information is available relating to setup costs (a part of factory overhead) : With traditional two-stage allocation of overhead costs, using direct labor hours as the allocation base, the setup cost portion of overhead that is allocated to each unit of product for Mica and Plax, respectively is:

• A) $80; $.80.
• B) $3.20; $3.20.
• C) $4.00; $4.00.
• D) $160.00; $12,800.00.
• E) $200.00; $16,000.00.

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Definitions:

Economic Profit

The balance a firm holds after all expenses, both acknowledged and assumed, are deducted from its gross receipts.

Price Discriminating

A pricing strategy where identical or similar products or services are sold at different prices to different buyers.

Marginal Cost

The outlay involved in generating one more unit of a product.

Buyer's Willingness

The maximum amount a consumer is ready to pay for a good or service, reflecting the value they place on it.