Jan's Bakery is considering a merger with Tina's Cookies. Jan's total operating costs of producing services are $300,000 for a sales volume of $2 million. Tina's total operating costs of producing services are $75,000 for a sales volume of $600,000. If the two firms merge, calculate the total average cost for the merged firm assuming no synergies.
A) 12.5 percent
B) 11.54 percent
C) 14.42 percent
D) 13.75 percent

Question

Quizplus · Accepted Answer

The total average cost for the merged firm is the sum of the total operating costs divided by the sum of the sales volumes. In this case, the total operating costs are $300,000 + $75,000 = $375,000 and the sales volumes are $2 million + $600,000 = $2.6 million. Therefore, the total average cost is $375,000 / $2.6 million = 14.42%.

Jan's Bakery Is Considering a Merger with Tina's Cookies