A Retail Store Has Three Departments, S, T, and U

question 81

Multiple Choice

A retail store has three departments, S, T, and U, and does general advertising that benefits all departments. Advertising expense totaled $50,000 for the year, and departmental sales were as follows. Allocate advertising expense to Department T based on departmental sales. $\begin{array}{lr}\text { Department S } & \$ 110,000 \\\text { Department T } & 213,750 \\\text { Department U } & 151,250 \\\text { Total } & \$ 475,000 \\\end{array}$

• A) $11,000.
• B) $14,000.
• C) $16,667.
• D) $22,500.
• E) $50,000.

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Definitions:

Average Total Cost

The total cost of production divided by the number of goods produced, representing the average cost per unit of output.

Diseconomies of Scale

A situation where as a firm grows larger, the costs per unit increase, due to factors like coordination and operational inefficiencies.

Diminishing Returns

A principle stating that adding more of one factor of production, while holding others constant, will at some point yield lower incremental per-unit returns.

Short Run

A time period during which at least one input, such as plant size, is fixed and cannot be changed by the firm.