Q. 5 (Total Marks: 10) Supreme Ltd. began with an inventory of 60 signs that cost a total of $1,800 Supreme purchased & sold signs on credit as follows: Purchase 1 65 signs @ $32 Sale 1 105 signs @ $65 Purchase 2 92 signs @ $38 Sale 2 75 signs @ $68 Supreme uses the average cost method of inventory valuation. Cash payments on account totalled $2,080. Operating expenses were $3,600. Supreme paid two-thirds in cash & accrued the rest as accounts payable. Required: a) Prepare a perpetual inventory record at average cost. (Marks: 7) b) Make journal entries to record the firm’s transactions.

A company would like to estimate its total cost equation. It has collected 48 months of monthly production output and corresponding total production costs. The collected data is in the file Production Cost Data Only.xlsx. Recall that

TOTAL COST = Fixed Costs + Variable Cost per Unit *Output.

Use the data to estimate a function that describes total cost for this company. (Round answers to 2 decimal places)

1. State the estimated total cost function.
2. What is the estimated Fixed Cost for the Company? Remember the fixed costs is independent of output. You can estimate it as the Total Cost when output is “0”.
3. What is the estimated average unit variable cost for the Company?
4. Develop a 95% confidence interval for the true average unit variable cost.
5. What percent of the variation in monthly total costs is “explained” by the regression model with monthly production output as the explanatory variable?
6. Suppose the plant manager is interested in estimating the mean total costs for several months where output is 30,000 units (i.e., Xp = 30) each month. Develop a 95% confidence interval for the mean total costs for months that average 30,000 units of output.

Total production cost each week in a production department have been measured for the past five weeks as follows:

Required:

a. Use linear regression analysis to obtain an estimate of the fixed cost per week and the variable cost of production per unit.

b. Use your results to estimate the total cost in a week when 8 units are produced.

c. Calculate the correlation coefficient and comment on the value of r that you have obtained. (2marks)

d. Estimate a value for fixed costs and variable costs from the same data, using the high/low analysis and use the values that you have obtained to estimate the total costs in a week when 8 units are produced.

Consider a firm that operates in the perfectly competitive salmon farming industry. The short-run total cost curve is TC(Q)=250+3Q+Q2 , where Q is the number of salmon harvested per month.

1. What is the equation for the average variable cost (AVC)?

2. Solve for the firm's operation condition, MC≥AVC.

3. Assuming MC≥AVC, what is the firm's short-run supply curve? Find the supply function, NOT the inverse supply function.

4. In light of the answer in part 2, What is the minimum price at which the firm operates?

Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000. These computers could be sold today for $300,000. If these computers are sold in five years, they will be worth $50,000. The CCA rate for these computers is 30%.

         The company is now considering whether it should replace these computers with newer and more powerful ones. The estimated total purchase cost of the new computers is $1.5 million. These computers can be sold for $300,000 in five years, and their CCA rate remains at 30%. The company expects to obtain before-tax cost savings of $300,000 per year from these new computers.

         The company’s marginal tax rate is 35%, and its required rate of return on new equipment is 15%. Should the company replace the computer equipment?

price greater than average variable cost

price less than average variable cost

marginal revenue greater than marginal cost

marginal revenue greater than average total cost

The following information is available from the Terry Company:

What is the fixed overhead production volume variance for Terry Company for the period, to the nearest whole dollar?

Multiple Choice

$1,200 unfavorable.

$1,400 favorable.

$1,400 unfavorable.

$600 favorable.

$1,000 unfavorable.

Monopolistic firm faces the inverse demand function p = 250 – 6Q. Firm’s total cost of production is C = 1250 + 10Q + 8Q² :

1. Create a spreadsheet for Q = 1 to Q = 20 in increments of 1. Determine the profit-maximizing output and price for the firm and the consequent level of profit.

2. Will the firm continue the production at the profit-maximizing level of output? Show why or why not?

3. Calculate the Lerner Index of monopoly power for each output level and verify its relationship with the value of the price elasticity of demand at the profit-maximizing level of output.

4. Suppose that a specific tax of 10 per unit is imposed on the monopoly. What is the effect on the monopoly’s profit-maximizing price?

Monopolistic firm faces the inverse demand function p = 250 – 6Q. Firm’s total cost of production is C = 1250 + 10Q + 8Q² :

1. Create a spreadsheet for Q = 1 to Q = 20 in increments of 1. Determine the profit-maximizing output and price for the firm and the consequent level of profit.

2. Will the firm continue the production at the profit-maximizing level of output? Show why or why not?

3. Calculate the Lerner Index of monopoly power for each output level and verify its relationship with the value of the price elasticity of demand at the profit-maximizing level of output.

4. Suppose that a specific tax of 10 per unit is imposed on the monopoly. What is the effect on the monopoly’s profit-maximizing price?