Review Question

1. What is sales revenue forecasting?

2. What types of data are needed to forecast sales or revenues?

3. What is cost estimation?

4. What is the first step managers need to complete when estimating costs?

20. How does technology affect costs?

22. Identify three environmental factors that affect business decisions related to costs.

25. How does technological innovation generally affect a firm' s costs?

27. What is meant by the learning curve?

28. What are controllable costs?

Exercise and Problems

6. Mega Profits Company estimated its annual total cost function to be: Y = $150,000 + $.57 x Assuming that Y represents total cost and x equals the number of units sold, use this equation to answer the following questions:

a. What is the firm' s total fixed cost?

b. What is the firm' s variable cost per unit?

c. Compute total costs if the firm sells 100,000 units.

d. Compute total costs if the firm sells 200,000 units.

e.  If the firm' s product sells for $1.00, how many units does the firm need to sell to break even?

f.  If the firm' s product sells for $1.50, how many units does the firm need to sell to break even?

7. Morrison Hotel uses its banquet room to host parties, dinner dances, and business meetings. The hotel serves meals and provides a variety of services for each event. A local consultant analyzed recent cost data and estimated the total cost function per event to be as follows: Y = $1,000 + $9.00 x Assuming that Y represents total cost and x equals the number of guests, use this equation to answer the following questions:

a. What is the firm' s total fixed cost per event?

b. What is the firm' s variable cost per guest?

c. Compute total costs if 50 guests attend the event.

d.  Compute total costs if 100 guests attend an event.

e.  If the hotel charges $25.00 per guest, how many guests must attend for the hotel to break even at each event?

f.  If the hotel charges $28.00 per guest, how many guests must attend for the hotel to break even at each event?

g.  If the hotel charges $28.00 per guest, would you advise this hotel to host events for 50 or fewer guests? Why or why not?

3. Durango Mountain Bike Company wants to open a bicycle repair shop in a suburb of a major metropolitan area. The industry association estimates that 20 percent of bicycles are repaired by similar service companies and that the average owner spends $100 per bicycle on maintenance each year. The census and local chamber of commerce data indicate that there are 10,000 bicycles in the county. Three other competitors exist within a twenty-five-mile radius of the proposed business location. Based on a consumer survey, the owners believe that they can capture 30 percent of the market in the first year of operation. Based on these data, address the following requirements:

a.  What is the potential number of bicycles likely to be commercially repaired?

b. What is the total potential bicycle repair revenue available in the market?

c. How much revenue can Durango Mountain Bike expect to generate?

The 3.8% additional Medicare surtax is paid by employees on their wages in excess of $250,000 MFJ ($200,000 Single, $125,000 MFS), while the 0.9% additional Medicare tax is paid on the lesser of net investment income or modified adjusted gross income (MAGI) over certain threshold amount (MFJ $250k, MFS $125k, Single $200k).

True

False

Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March follow:

Required:

Compute the predetermined overhead rate assuming that Tiger Furnishings uses direct labor-hours to allocate overhead costs. (Round your answer to 2 decimal places.)

Question B3

Recently the employees of Ming News Ltd received a letter from the director of operations, Alex, explaining that a new production plant would be built in the New Bay Area. The letter also stated that about 80% of the employees from the current office would be transferred to the new plant and if employees wanted to volunteer for the transfer, they could inform the human resource manager. Tom, a production trainee, first went to David, the production manager, who had already volunteered to transfer, to discuss with him the benefit and career opportunity at the new plant. David shared with Tom about Alex’s new model of operation in the new office. It will take care of employee satisfaction. The new plant will take care to ensure employees have the best conditions to perform, ranging from free snack bars, sports facilities, a medical clinic, and so on.

Which dimension of organisational culture is Ming News Ltd going to emphasise in the new plant?

Question B4

ABC is a large hotel group with four hotels in the city. Last month, there was an outbreak of a disease in one of the hotels. About ten guests were sick and sent to hospitals for treatment. Luckily, there was no fatal case. Later, it was confirmed that the cleaning work of that hotel had not been done well. The government also investigated the incident that happened in this hotel. The hotel had to close for three days for throughout cleaning work before it could re-open to receive new guests. The hotel appointed Susan Wong, the assistant executive manager, to follow up the case to resolve various problems. She first supervised the cleaning work. Also, she had to investigate the causes leading to the incident and found out who were responsible for such outbreak. Lastly, she would make recommendations to top management on how to avoid the occurrence of similar problem in future.

Based on the above case, identify the Mintzberg's specific managerial role (other than the monitor role) performed by Susan Wong in managing the incident in this hotel group.

Question B5

Google has made some tremendous efforts in going green by slashing their energy usage and supporting green energy projects. For instance, Google has constructed one of the world’s most energy efficient data centers and continuously campaigns for the need for energy conservation and the use of renewable energy sources as well as clean energy products. Google has supported and funded green energy projects by buying and installing numerous windmills and solar panels. It looks for a way to protect the earth’s natural resources.

Based on the above case, identify the approach that Google has applied when going green.(2marks)

Playland at Pacific National Exhibition is an amusement park offering 31 different rides (including 4 rollercoasters and 1 water ride). The guests who are 48” or taller can go on any ride they want and so they get more value from visiting the park; let us say their individual demand is given by P = 5 – 0.25qO, where P is the price per ride ($ per ride) and qO is the number of the rides (per day) (the subscript O stands for “One Day;” that’s how the park calls its passes for the guests who are 48” or taller). The guests who are under 48” are not allowed on certain rides so they get less value from visiting the park; let us say their individual demand is given by P = 4 – 0.25qJ, where P is the price per ride ($ per ride) and qJ is the number of the rides (per day) (the subscript J stands for “Jr. One Day;” that’s how the park calls its passes for the guests under 48”). Assume it costs the park flat ¢25 per guest to operate a single ride, and it costs the park flat ¢75 to issue a single ticket to a ride. Assume there are 500 guests 48” or taller and 500 guests under 48” on an average day. We can consider Playland a monopolist in Vancouver

If Playland employed a second-degree price discrimination scheme (single ride tickets are issued, each rider receives a book of tickets [qO or qJ]),

what is Playland’s profit on an average day ($ per day)? Assume zero fixed cost

Select the best engine in term thermal efficiencies of an actual and reversible heat engine of two heat engine given below and give reason for your selection

Engine A:-
Source temperature 800K, heat input rate 450 kW, heat rejection rate 300 kW, sink temperature 315K

Engine B:-
Source temperature 650K, heat input rate 345 kW, pumping power 5 kW, turbine power 120 kW, sink temperature 300K.

Again, there is research on the relationship between gender and sense of direction. Recall that, in their study, the spatial orientation skills of 30 male and 30 female students were challenges in a wooded park near the Boston College campus in Newton, Massachusetts. The participants were asked to rate their own sense of direction as either good or poor.

In the park, students were instructed to point to predesignated landmarks and also to the direction of south. For the female students who had rated their sense of direction to be good, the table above provides the pointing errors (in degrees) when they attempted to point south.

1. If, on average, women who consider themselves to have a good sense of direction do not better than they would by just randomly guessing at the direction of south, what would their mean pointing error be?
2. At the 1% significance level, do the data provide sufficient evidence to conclude that women who consider themselves to have a good sense of direction really do better, on average, than they would by just randomly guessing at the direction of south? Use a one-mean t-test.
3. Obtain a normal probability plot, boxplot, or stem-and-leaf diagram of the data. Based on this plot, is use of the t-test reasonable? Explain your answer.

Costs that change abruptly at different levels of activity because the resources are available only in indivisible chunks are called ________.

A) mixed costs

B) variable costs

C) fixed costs

D) step costs

Answer:

A compensation plan where the sales force is paid salary plus commission is a ________.

A) purely variable cost

B) mixed cost

C) step cost

D) fixed cost

Answer:

The break-even point on the cost-volume-profit graph is where the ________.

A) total cost line intersects the net profit line

B) total cost line intersects the net loss line

C) revenue line intersects the total cost line

D) revenue line intersects the variable cost line

Answer:

Suppose a hotel has annual fixed costs applicable to its rooms of $2.0 million for its 300-room hotel. Average daily room rents are $50 per room and average variable costs are $10 for each room rented. It operates 365 days per year. If the hotel is completely full throughout the year, what is net income for one year?

A) $1,280,000

B) $2,380,000

C) $3,180,000

D) $4,380,000

Answer:

Murphy Company produces dolls. Each doll sells for $20.00. Variable costs per unit are $14.00 and total fixed costs for the period are $435,000. What is the break-even point in units?

A) 21,750

B) 31,071

C) 51,176

D) 72,500

3. Vacation Island has only one hotel on the entire island. The demand schedule to rent a room for a-night at the hotel is given bellow. Price per night Quantity demanded $150 0 $130 1 $110 2 $90 3 $70 4 $50 5 $30 6 a) Calculate the hotel’s total revenue and its marginal revenue. Fill in the table below. Price Quantity Total Revenue Marginal Revenue $150 0 - $130 1 $110 2 $90 3 $70 4 $50 5 $30 6 b) The marginal costs are listed in the table below. What price will the hotel charge to maximize its profit? Explain. Quantity Marginal Cost 0 - 1 $40 2 $43 3 $50 4 $61 5 $76 6 $95 c) How many rooms will be rented, when the hotel maximizes its profit? Explain.