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Answer the question ANALYSIS AND INTERPRETATION PROBLEMS TO AIP 2.1 Variable and Fixed Costs LO 7 Dellana Lab operates four blood testing labs in Boston.
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ANALYSIS AND INTERPRETATION PROBLEMS TO AIP 2.1 Variable and Fixed Costs LO 7 Dellana Lab operates four blood testing labs in Boston. The four labs are identical. They employ the same production technology, process the same types of blood tests, and buy raw materials from the same companies at the same prices. Wage rates are also the same at the four labs. In reviewing operating results for November, the newly hired assistant controller, Matt Paige, became quite confused over the numbers: COS Lab A Lab B Lab C Lab D 60,000 Number of blood tests Revenue ($000s) 50,000 $500 55,000 $550 65,000 $650 Less: Variable costs Fixed costs Profit (Loss) (195) (300) $ 5 (242) (300) $ 8 (298) (300) $ 2 (352) (300) $ (2) Upon further study, Matt learned that each plant had a fixed overhead of $300,000. Matt remembered from his management accounting class that as volume increases, average fixed cost per unit falls. Lab D had much lower average fixed costs per blood test than labs A and B. Matt, therefore, expected lab D to be more profitable than A and B. But the numbers show just the opposite Write a concise but clear memo to Matt that will resolve his confusionStep by Step Solution
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