6.      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?

The local franchise of Vogorio Sandwich Company assigns you the task of estimating total maintenance cost on its delivery vehicles. This cost is a mixed cost. You are given the following data from past months:

Required:

A. Using the high-low method, determine the total amount of fixed costs and the amount of variable cost per unit.  

B. If the number of units turned out to be 9,000 for a given month, what would be the fixed portion, the variable portion, and the total cost to be expected?  

1. Assume (1) total sales are $300,000, (2) the direct labor cost of $40,000 is 25% of total conversion costs and 40% of total prime costs, (3) the total selling and administrative expense is $62,000, (4) the only variable selling and administrative expense is sales commissions of 6% of sales, (5) all manufacturing overhead costs are fixed costs, and (6) there are no beginning or ending inventories.

What is the total contribution margin?

2. Assume that a manufacturing company incurred the following costs:

3,

Assume the following information for a merchandising company:

What is the company's contribution margin?

What is the total amount of manufacturing overhead?

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?

Headlands Industries reports the following for the month of June.

Calculate weighted-average unit cost. (Round answer to 3 decimal places, e.g. 5.125.)

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Compute the cost of the ending inventory and the cost of goods sold under FIFO, LIFO, and average-cost. (Round answers to 0 decimal places, e.g. 125.)

Plato Company reports the following for the month of June.

Instructions

(a)    Calculate the cost of the ending inventory and the cost of goods sold for each cost flow assumption [LIFO,FIFO], using a perpetual inventory system. Assume a sale of 570 units occurred on June 15 for a selling price of $8 and a sale of 600 units on June 27 for $9. (Note: For the average-cost method, round unit cost to three decimal places.)

Create a new spreadsheet in which total fixed cost increases to $5,000. What price should the manager charge? How many papers should be sold in the short run?

(32) You plan to buy a car that has a total "drive-out" cost of $21,100. You will make a down payment of $2,321. The remainder of the car's cost will be financed over a period of 4 years. You will repay the loan by making equal monthly payments. Your quoted annual interest rate is 12% with monthly compounding of interest. (The first payment will be due one month after the purchase date.) What will your monthly payment be?

Consider a monopolist who has a total cost function C(q) = 1000 + 10q The demand function for the market is D(p) = 600 - 12.5p Answer each part below:(a) Use the inverse demand equation to derive the monopolist's marginal revenue equation, MR(q). (1 points) (b) What is the marginal cost, MC(q)? (0.5 points) (c) Solve for the profit-maximizing quantity and price. Note: Explain or show your work! (2 points) (d) Compute the price elasticity of demand at the profit-maximizing price and quantity (round to 3 decimal places). Then, interpret the elasticity and state whether demand is elastic, inelastic, or unit elastic. (1.5 points)

An industry consists of two (perfectly) firms. Firm 1 has a total cost function given by ??1(?1)=?1 +(?1)^2

while firm 2 has a total cost function given by ??2(?2)=3*?2+(1/2)*(?2)^2 .

1. (a) Let ? denote the (exogenous) price at which each firm can sell its output. Write down each firm’s profit-maximization problem and the associated first-order conditions (FOCs).

2. (b) Derive the firms’ supply functions ?∗(?) and ?∗(?) and verify that these functions are

   linearly increasing in ?.

3. (c) Derive the industry supply curve ?(?). [Hint: Draw a picture and remember the notion of horizontal summation. You should demonstrate that the industry supply curve is a piecewise function in ?]

4. Again assuming that the firms act as price takers, find the industry equilibrium when the industry demand curve is given by ??(?)=(9/2)-(1/2)p .[Hint: It may be useful to add the relevant to the graph considered in part (c)]

5. (e) Calculate the output and profit of each firm under the equilibrium characterized in part (d).