7. Which of the following statements is (are) correct?

(x) A firm has a fixed cost of $16,000 in its first year of operation. When the firm produces 4,000 units of output, its total costs are $65,000. The marginal cost of producing 200 more units beyond 4,000 units is $28 per unit. Therefore, the total cost of producing 4,200 units is $70,600

(y) A firm has a fixed cost of $12,800 in its first year of operation. If the firm produces 400 units of output,

its average total cost is $110. The marginal cost of producing the 401st unit of output is $150 and the marginal cost of producing the 402nd unit is $165. Therefore, the variable cost of producing 402 units is more than $31,525.

(z) A firm has a fixed cost of $10,000 in its first year of operation. When the firm produces 3,000 units of output, its total costs are $45,000. When it produces 3,050 units of output, its total costs are $46,600.

If the marginal cost of each of the 50 additional units of output is the same then the marginal cost of producing the 3,015th unit of output is $32.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (x) only

9. At the current level of output, a profit-maximizing firm in a competitive market earns average revenue of $40, has an

average total cost of $43 and an average variable cost of $36.

If the firm's marginal cost curve is equal to its average total cost curve at an output level of 25,000 units, how much loss does the

firm experience at its current level of output?

A. exactly $75,000

B. more than $75,000

C. less than $75,000

D. None of the above

10. Which of the following statements is (are) correct?

(x) A profit maximizing firm in a competitive market produces corn. Suppose the market price for corn is $4.00 per bushel. At the profit maximizing (loss minimizing) quantity of 50,000 bushels, the ATC is equal to $5.00 and the AFC is equal to $1.50. Given these conditions the firm will experience losses of $50,000 since price is less than average total cost but greater than average variable cost.

(y) A profit maximizing firm in a competitive market produces wooden chairs. The firm, which is a price-taker, faces a price of $50 for its product. Its average total cost is $57 and its average fixed cost is $9 at the quantity where marginal cost equals marginal revenue. In the short run, the firm will shut down and incur the total loss of its fixed costs.

(z) At the current level of output, a profit-maximizing firm in a competitive market earns average revenue of $35 and has an average total cost of $32. If the firm's marginal cost curve is equal to its average total cost curve at an output level of 50,000 units, then the firm would earn a profit of $150,000 at its current level of output.

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (x) only

Apply the Concepts: FIFO and Weighted Average

Scenario 1: Dormir produces a liquid herbal sleep remedy. Production begins in the Blending Department. All materials are added at the beginning of the blending process. Output is measured in ounces. The production data for June are as follows:

Complete the physical flow schedule given below. There are a number of useful relationships. For example, Units Started and Completed = Units Completed ‒ Units in BWIP and Units Started = Units Completed ‒ Units in EWIP

Units to Account for:

Prepare the Equivalent Unit Schedules for FIFO and Weighted Average by completing the Table below. Since inputs are non-uniform, equivalent units must be calculated separately for calculated for materials and conversion inputs. If an amount box does not require an entry, leave it blank or enter "0".

Using the following cost data for the Blending Department for the month of June, calculate the unit cost for FIFO and Weighted Average (complete the table following cost data). The unit cost is the sum of the unit materials cost and the unit conversion cost. Round unit cost to two decimal places.

Costs:

Calculate the cost of goods transferred out and the cost of EWIP for both FIFO and Weighted Average by completing the following Tables (Round unit cost to two decimal places.):

Show that the costs to account for equal the costs assigned for both FIFO and Weighted Average by completing the following information.

Q1：

The total assets and the total liabilities of a business at the beginning and at the end of the year appear below. During the year, the corporation paid cash dividends of $24,000 and the stockholders made an additional investment of $15,000.

Assets   Liabilities

Beginning of year $395,000 $190,000

End of year 555,000 320,000

The amount of net income or net loss for the year was

Group of answer choices

net income of $54,000.

net income of $30,000.

net loss of $15,000.

net income of $39,000.

net income of $69,000.

Q2：

Marsh Company does not ring up sales taxes separately on the cash register. Total receipts for February were $14,310. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes?

Group of answer choices

$ 810.00

$858.60

cannot be determined

Q3：

Machinery was purchased for $50,000, has an estimated scrap value of $6,000 and has a current carrying value of $33,000. Its depreciable cost is

Group of answer choices

$19,000.

$11,000.

$44,000.

$17,000.

$27,000.

$1,013.40

$807.08

Marty’s Mask produces a variety of masks used in industrial and healthcare settings as well as plastic masks used in costumes. Due to the current pandemic, Marty is going to produce only masks that are useful in a healthcare setting and will focus on three models – N95, disposable surgical and plastic shields (simple retooling and changing of the material allows the plastic masks machines to make the shields). Marty is limited by the number of machine hours available and has a higher demand for the masks than can currently be met. Current production capabilities are limited by the 200,000 machine hours per week. Following is information for each of these products:

*20% of the fixed costs are unavoidable regardless of how many of each unit is produced

A. In order to maximize the company’s total contribution margin, in what sequence should Marty fill orders?

B. How many of each should Marty produce?

C. What are three other possible criteria/issues Marty should consider besides maximizing contribution margin when evaluating the order in which to produce the masks?

Part II

Question 2:

Wood World manufactures many wooden products. One of its popular product lines is the wooden crate line. It currently produces 100,000 crates monthly and this production volume represents 80% of capacity. These crates are sold in their unfinished form (no paint or stain) and are used by individuals and businesses in various ways. College students often stack them to make shelves and storage areas. Wood World is considering adding paint, various stains and even decoupage to 25% of the crates and selling them as their “designer crate line.” A single unfinished crate consists of $7 in direct materials, $12 in direct labor, $3 in variable manufacturing overhead $5 in fixed manufacturing overhead and sells for $40. The designer crate line would add the following: $4 in direct materials, $8 in direct labor, and $2 in variable manufacturing overhead and $1 in additional fixed costs. Market studies indicate a designer crate can be sold for $55.

A. Should Wood World sell all the crates in the unfinished form or should it process them further into designer crates? Why? (be sure to back up your explanation with numbers)

B. Would your answer change if Wood World was operating at capacity? Why or why not?

C. What are three non-quantitative issues Wood World should consider in making this decision?

Part II

Question 3:

Louis Luggage produces many different types and sizes of luggage. Their best seller, the Weekend Warrior, sells for $140. Louis has been asked by Macrosoft, Inc. to produce 2,000 of the Weekend Warrior with a specially designed fingerprint security lock and with the Macrosoft company logo. These will be given to Macrosoft employees who must travel frequently for work. Macrosoft has offered to pay $120 per suitcase. Louis’ costs related to the Weekend Warrior consist of variable costs per unit of $50 and fixed costs per unit of $35 of which $9 are unavoidable. In addition, Louis will encounter additional variable costs of $10 per unit for the security lock component and $4,000 as a one-time fixed cost for the Macrosoft label.

A. What is the operating income generated by the special order?

B. Should the special order be accepted? Why or why not?

C. What are three other considerations that Louis, or any company, should think about when choosing whether to accept a special order?

Part II

Question 4:

Cassie’s Clowns produces clown costumes and other party favors and supplies and has three divisions – Funny, Scary and Sad. Based on the latest information presented to the CEO by the controller, a discussion has ensued as to the fate of the Scary division. The division is operating at a loss. The manager of the Scary Division, Vam Pire, argues that his division is profitable and that the company will be worse off it they close the Scary Division. Here is the latest information for Cassie’s Clowns:

Of the fixed S&A costs, 15% represent common costs that have been allocated equally to each product line. In addition, 25% of Scary’s fixed production costs are unavoidable as these are fixed costs associated with facilities and equipment shared by all three divisions.

A. Is Vam Pire correct – should the Scary Division be kept or eliminated? Why or why not?

B. What would be total corporate income if Scary Division is eliminated currently?

C. What are two areas Cassie and in particular Scary’s management should look at to improve Scary’s bottom line?

D. What are three qualitative things that Cassie should consider when deciding if a division is eliminated?

Part II

Question 5:

Ace Acting Co. is a professional actor training group that trains stage actors and is headquartered in Los Angeles. The CEO of the company, Allen Ace, is considering expanding and opening an office in New York City but he just received an interesting business opportunity in the San Francisco area to partner with a movie production company located there. Mr. Ace knows he can only accept one of these opportunities at the current time. He has already purchased his non-refundable ticket to New York for $525 however the ticket can be exchanged for a voucher for a future trip. To ensure that he was able to stay in the appropriate location within each city, he has already made hotel reservations. These reservations are cancelable except for a 5% cancellation fee. The hotel in New York is $650 total for the two nights and the San Francisco hotel is $500 for the length of the stay. If he goes to New York, Mr. Ace plans to purchase a ticket to see Hamilton on Broadway at a cost of $400. He will also incur taxi fees of $100 and expects to spend $200 for meals in New York and $300 in San Francisco. Since he would be able to drive from Los Angeles to San Francisco, he would get reimbursed $250 for mileage. Mr. Ace will pay for all costs and will be reimbursed by his company for business expenses.

Required:

A. What are the relevant costs of each trip?

B. What are the incremental costs (and what is the total incremental cost)?

C. Without considering qualitative factors (thus use numbers to analyze), which alternative should Allen choose? Why?

D. What are three qualitative factors that Allen might consider?

E. Why is it important to use relevant costs and revenues when evaluating decisions?

according to the kinked demanded curve model, an oligopolistic firm will produce where:

A: average total cost is minimized

B: price equals marginal cost

C: marginal revenue equals marginal cost

D: the demand curve intersects the average total cost curve

The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.

a) How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?

b) Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market

c) Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.

An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes and total cost data for a manufacturing operation.

(a)

Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume. (Round your numerical values to two decimal places.)

ŷ = _____

(b)

What is the variable cost (in dollars) per unit produced?

$ _____

(c)

Compute the coefficient of determination. (Round your answer to three decimal places.)

What percentage of the variation in total cost can be explained by production volume? (Round your answer to one decimal place.)

________%

(d)

The company's production schedule shows 650 units must be produced next month. Predict the total cost (in dollars) for this operation. (Round your answer to the nearest cent.)

$ _______

An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes and total cost data for a manufacturing operation.

(a)

Use these data to develop an estimated regression equation that could be used to predict the total cost for a given production volume. (Round your numerical values to two decimal places.)

ŷ =  

(b)

What is the variable cost (in dollars) per unit produced?

$

(c)

Compute the coefficient of determination. (Round your answer to three decimal places.)

What percentage of the variation in total cost can be explained by production volume? (Round your answer to one decimal place.)

%

(d)

The company's production schedule shows 650 units must be produced next month. Predict the total cost (in dollars) for this operation. (Round your answer to the nearest cent.)

$