Shatner Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

a. Determine the variable cost per unit and the total fixed cost.

b. Based on part (a), estimate the total cost for 2,800 units of production.

Question 2: The equation for a firm’s short-run total cost is STC = 10 + 5q + 0.1q2. Its short-run marginal cost is SMC = 5 + 0.2q. The market price is $25 per unit.

a. What is the firm’s maximum profit?

b. If all of the firm’s fixed costs are sunk, what is the equation for the firm’s short-run supply curve? explain

c. If all of the firm’s fixed costs are non-sunk, what is the equation for the firm’s short-run supply curve? explain

Consider the following sample of production volumes and total cost data for a manufacturing operation.

This data was used to develop an estimated regression equation, ŷ = 1,305.33 + 7.44x, relating production volume and cost for a particular manufacturing operation. Use α = 0.05 to test whether the production volume is significantly related to the total cost. (Use the F test.)

(a) State the null and alternative hypotheses.

(b)Set up the ANOVA table. (Round your p-value to three decimal places and all other values to two decimal places.)

(c)Find the value of the test statistic. (Round your answer to two decimal places.)

(d)Find the p-value. (Round your answer to three decimal places.)

(e)What is your conclusion?

Do not reject H₀. We cannot conclude that the relationship between production volume and total cost is significant.

Reject H₀. We conclude that the relationship between production volume and total cost is significant.     

Do not reject H₀. We conclude that the relationship between production volume and total cost is significant.

Reject H₀. We cannot conclude that the relationship between production volume and total cost is significant.

A firm purchased some office equipment for a total cost of $300000. The equipment generated net income of $100000 per year. The firm’s marginal tax rate is 20%. The equipment was sold at the end of the 4th year for a total of $75000. Assume that MARR is 12%/year. Calculate the net present worth (NPW) of this investment for problems a-d.

a.) If the firm used the straight line depreciation, NPW =

b.) If the firm used the SOYD depreciation, NPW =

c.) If the firm used the DDB depreciation, NPW =

d.) If the firm used the MACRS depreciation, NPW =

A firm purchased some office equipment for a total cost of $300000. The equipment generated net income of $100000 per year. The firm’s marginal tax rate is 20%. The equipment was sold at the end of the 4th year for a total of $75000. Assume that MARR is 12%/year. Calculate the net present worth (NPW)

8. If the firm used the MACRS depreciation, NPW =

A firm purchased some office equipment for a total cost of $300000. The equipment generated net income of $100000 per year. The firm’s marginal tax rate is 20%. The equipment was sold at the end of the 4th year for a total of $75000. Assume that MARR is 12%/year. Calculate the net present worth (NPW) of this investment. If the firm used the MACRS depreciation, NPW =

A firm purchased some office equipment for a total cost of $300000. The equipment generated net income of $100000 per year. The firm’s marginal tax rate is 20%. The equipment was sold at the end of the 4th year for a total of $75000. Assume that MARR is 12%/year. Calculate the net present worth (NPW) of this investment. If the firm used the DDB depreciation, NPW =

A firm purchased some office equipment for a total cost of $300000. The equipment generated net income of $100000 per year. The firm’s marginal tax rate is 20%. The equipment was sold at the end of the 4th year for a total of $75000. Assume that MARR is 12%/year. Calculate the net present worth (NPW) of this investment for problems 5-8.

7. If the firm used the DDB depreciation, NPW = ?

8. If the firm used the MACRS depreciation, NPW = ?

Your company has estimated its total cost to be TC = 54,000 + 2Q + 0.012Q²; its marginal cost is thus MC = 2 + 0.024Q, where Q is the quantity of units produced and TC is in dollars. Since your market is relatively competitive, your company is able to sell its output for $122.00 each (which thus yields MR = 122 and TR = 122Q).

a.   Produce a chart in Excel showing TC and TR with Q on the horizontal axis. Have Q go from 0 to 10,000 units (each row of your Q column can increase by a relatively large number so that your table isn’t huge). Produce a second chart showing MC and MR with Q again on the horizontal axis.

b.   What is the optimal level of output for your company to produce/sell? What is the marginal revenue from the last unit sold?

c.   What are the total revenue, total cost, and profit (net benefit/net revenue/etc.) from selling the optimal number of units?

d.   An eager intern at your company suggests that, since the company earns $122 revenue for each unit sold, then the company could make still more profit by selling more than the level chosen in part b; why would your company not want to produce and sell more output than the level you chose in part b?

1. In applying the high-low method of cost estimation to mixed costs, how is the total fixed cost estimated?
2. If fixed costs increase, what would be the impact on the (a) contribution margin? (b) income from operations?
3. An examination of the accounting records of Clowney Company disclosed a high contribution margin ratio and production at a level below maximum capacity. Based on this information, suggest a likely means of improving income from operations. Explain.