High-Low Method

Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fixed, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows:

Required:

1. Which month represents the high point? The low point?

In your calculations, round per unit costs to the nearest cent.

2. Using the high-low method, compute the variable rate for tanning. Compute the fixed cost per month. Round the variable rate per tanning appointment to the nearest cent and use it in your further calculations. Round the fixed cost per month to the nearest dollar and use it in your further calculations.

3. Using the variable rate and fixed cost, what is the cost formula for tanning services?

4. Calculate the total predicted cost of tanning services for September for 2,600 appointments using the formula found in Requirement 3. Of that total cost, how much is the total fixed cost for September? How much is the total predicted variable cost for September? If required, round the final answers to the nearest dollar.

5. Which of the following statements is correct when luisa uses the high-low method to estimate the costs?

Cost Behavior

Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,675,000 + $375X, where X = Number of Heart Stents. Last year, Alisha produced 58,000 stents. Actual maintenance costs for the year were as expected.

Required:

If required, round your answers to the nearest cent.

1. What is the total maintenance cost incurred by Alisha last year?

$

2. What is the total fixed maintenance cost incurred by Alisha last year?

$

3. What is the total variable maintenance cost incurred by Alisha last year?

$

4. What is the maintenance cost per unit produced?

$per unit

5. What is the fixed maintenance cost per unit?

$per unit

6. What is the variable maintenance cost per unit?

$per unit

7. Alisha management could improve its cost function to better understand past maintenance costs and predict future maintenance costs by.

1. Income Statements under Absorption and Variable Costing

   In the coming year, Kalling Company expects to sell 28,700 units at $32 each. Kalling’s controller provided the following information for the coming year:

   Units production	30,000
   Unit direct materials	$ 9.95
   Unit direct labor	$ 2.75
   Unit variable overhead	$ 1.65
   Unit fixed overhead*	$ 2.50
   Unit selling expense (variable)	$ 2.00
   Total fixed selling expense	$ 65,500
   Total fixed administrative expense	$231,000

   * The unit fixed overhead is based on 30,000 units produced.

   Required:

   1. Calculate the cost of one unit of product under absorption costing.

   $

   2. Calculate the cost of one unit of product under variable costing.

   $

   3. Calculate operating income under absorption costing for next year.

   $

   4. Calculate operating income under variable costing for next year.

   $

I have compared the last 10 days of temperature highs in my current town and compared it with the last 10 days of temperature highs in Juneau, Alaska. Here were my results (in fahrenheit):

Derby Line:

27, 32, 34, 36, 28, 27, 32, 21, 32, 32

Juneau, Alaska:

37, 39, 37, 34, 28, 34, 36, 43, 39, 39

With the information I have provided, are we able to determine with 99% that Juneau, Alaska has a higher average temperature the last 10 days than where I live?

You are a primary care provider in a small town. You have 2 patients who have come to see you today. Some information about your patients, their hormone status and their symptoms is found in the table below….

Based on Ms. McGeehee’s results, describe the dysfunction or disease that she is experiencing. (NOTE: You don’t need to be clinically accurate here, but you should be able to identify the site of the dysfunction.) Why do you think a problem at this site is producing the lab values and the symptoms she is experiencing?

Lab 1: Using the Scientific Method Worksheet

At a local town meeting, one of your neighbors complains that a nearby residence is killing his flowers because of the chemicals he uses to wash his cars. He claims that the soap runs into a stream that flows very close to his flower beds. As an inquiring student of science, you wonder whether soap can truly affect flower growth.

Based on the observation given to you, use the following questions to explain how you would set up your experiment and analyze your results.

1.       State your hypothesis. Remember that a hypothesis must be specific and testable. For example, stating that detergents are bad is not a good hypothesis (“Bad” is a generic term, it would be better to use a metric that is measurable).

2.       Explain how you would set up your control and treatment groups. What would be the same between the groups and what would be different? What species would you use for each group and how many plants total would you use?

3.       How would you collect your data for your experiment? What tools and units of measurement would you use? How often would you collect data and would you use the same methodology for both your treatment and control groups? Be specific in your answers.

In every experiment, there are some unintentional differences between the control and treatment groups. These are called sources of error. If these sources of error can be corrected we call them avoidable sources of error. An example of an avoidable source of error may be the amount of water provided to the plant. We can avoid this error by watering the plants in each group, the same amount at the same time of the day.

4. List some possible sources of avoidable and unavoidable error in your fertilizer experiment that were provided to you as examples.

5..       Explain the difference between a theory and a hypothesis.

6.       Explain the difference between the ‘everyday’ use of the word theory and the definition of a scientific theory.

7.       Why is it important to educate people on the true definition of “theory”?

Recording General Fund Operating Budget and Operating Transactions. The Town of Bedford Falls approved a General Fund operating budget for the fiscal year beginning on July 1. The budget provides for estimated revenues of $2,700,000 as follows: property taxes, $1,900,000; licenses and permits, $350,000; fines and forfeits, $250,000; and intergovernmental (state grants), $200,000. The budget approved appropriations of $2,650,000 as follows: General Government, $500,000; Public Safety, $1,600,000; Public Works, $350,000; Culture and Recreation, $150,000; and Miscellaneous, $50,000.

a.Prepare the journal entry (or entries), including subsidiary ledger entries, to record the Town of Bedford Falls’s General Fund operating budget on July 1, the beginning of the Town’s fiscal year.

b.Prepare journal entries to record the following transactions that occurred during the month of July.

1.Revenues were collected in cash amounting to $31,000 for licenses and permits and $12,000 for fines and forfeits.

2.Supplies were ordered by the following functions in early July at the estimated costs shown:

General Government $ 7,400

Public Safety 11,300

Public Works 6,100

Culture and Recreation 4,200

Miscellaneous 900

Total $29,900

During July, supplies were received at the actual costs shown below and were paid in cash. General Government, Culture and Recreation, and Miscellaneous received all supplies ordered. Public Safety and Public Works received part of the supplies ordered earlier in the month at estimated costs of $10,700 and $5,900, respectively.

Actual Cost Estimated Cost

General Government $7,300 7,400

Public Safety 10,800 10, 700

Public Works 6,100 5,900

Culture and Recreation 4,100 4,200

Miscellaneous 900 900

Total $29,200 $29,100

c. Calculate and show in good form the amount of budgeted but unrealized revenues in total and from each source as of July 31.

d. Calculate and show in good form the amount of available appropriation in total and for each function as of July 31.

Consider a town in which only two residents, Kenji and Lucia, own wells that produce water safe for drinking. Kenji and Lucia can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water.

Suppose Kenji and Lucia form a cartel and behave as a monopolist. The profit-maximizing price isper gallon, and the total output isgallons. As part of their cartel agreement, Kenji and Lucia agree to split production equally. Therefore, Kenji's profit is, and Lucia's profit is

.

Suppose that Kenji and Lucia have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Kenji says to himself, "Lucia and I aren't the best of friends anyway. If I increase my production to 30 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow."

After Kenji implements his new plan, the price of water   toper gallon. Given Lucia and Kenji's production levels, Kenji's profit becomes and Lucia's profit becomes

.

Because Kenji has deviated from the cartel agreement and increased his output of water to 30 gallons more than the cartel amount, Lucia decides that she will also increase her production to 30 gallons more than the cartel amount.

After Lucia increases her production, Kenji's profit becomes, Lucia's profit becomes, and total profit (the sum of the profits of Kenji and Lucia) is now

.

True or False: Based on the fact that both Kenji and Lucia increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity.

True

False

Note that Kenji and Lucia started by behaving cooperatively. However, once Kenji decided to cheat, Lucia decided to cheat as well. In other words, Lucia's output decisions are based on Kenji's actions.

This behavior is an example of   .

Carter Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

o Sales are budgeted at $380,000 for November, $390,000 for December, and $400,000 for January.

o Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible.

o The cost of goods sold is 65% of sales.

o The company desires to have an ending merchandise inventory equal to 80% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase.

o Other monthly expenses to be paid in cash are $22,000.

o Monthly depreciation is $20,000.

o Ignore taxes.

Balance Sheet October 31 Assets

Cash $13,000

Accounts receivable, net of allowance for uncollectible accounts 77,000

Inventory 197,600

Property, plant and equipment, net of $502,000 accumulated depreciation 992,000

Total assets $1,279,600

Liabilities and Stockholders' Equity

Accounts payable $240,000

Common stock 780,000

Retained earnings 259,600

Total liabilities and stockholders' equity $1,279,600

The accounts receivable balance, net of uncollectible accounts, at the end of December would be:

You own a chain of 3 dry-cleaning stores in a medium-size town. A problem in customer service has surfaced recently. When you spend the day, or even part of the day in a particular store, clerks seem to provide excellent customer service, spotters are making sure all stains are removed from garments, and pressers are doing a good job of pressing difficult items such as silk blouses. Yet during those same visits, customers complain to you about such things as stains not being removed and items being poorly pressed in some of their previous orders; indeed, several customers have brought garments in to be redone. Customers also sometimes comment on having waited too long for service on previous visits Discuss the extent to which you believe that you have a motivation problem in your stores. 2. Using concepts you have studied in this unit, design a plan to increase the motivation of clerks to provide prompt service to customers even when they are not being watched. 3. Design a plan to increase the motivation of spotters to remove as many stains as possible even when they are not being watched. 4. Design a plan to increase the motivation of pressers to do a topnotch job on all clothes they press, no matter how diff

(DSR Chp 10, U6) Consider a small town that has a population of dedicated pizza eaters but is able to accommodate only two pizza shops, Donna’s Deep Dish and Pierce’s Pizza Pies. Each seller has to choose a price for its pizza to maximize profits. Suppose further that it costs $3 to make each pizza (for each store) and that experience or market surveys have shown that the relation between sales (Q) and price (P ) for each firm is as follows:

QP =12−PP +0.5PD.

Then profits per week (Y , in thousands of dollars) for each firm are:

YP = (PP −3)QP = (PP −3)(12−PP +0.5PD),

YD = (PD −3)QD = (PD −3)(12−PD +0.5PP).

(a) Use these profit functions to determine each firm’s best-reply rule and use the best-reply rules to find the Nash equilibrium of this pricing game. What prices do the firms choose in equilibrium? How much profit per week does each firm earn?

(b) If the firms work together and choose a joint best price, P, then the profit of each will be: YD = YP = (P −3)(12−P +0.5P) = (P −3)(12−0.5P). What price do they choose to maximize joint profits?

(c) Suppose the two stores are in a repeated relationship,trying to sustain the jointprofit-maximizing prices calculated in part (b). They print new menus each month and thereby commit themselves to prices for the whole month. In any one month, one of them can defect from the agreement. If one of them holds the price at the agreed level, what is the best defecting price for the other? What are its resulting profits? For what interest rates will their collusion be sustainable by using grim-trigger strategies?

In 1990, the town of Ham Harbor had a more-or-less free market in taxi services. Any respectable firm could provide taxi service as long as the drivers and cabs satisfied certain safety standards. Let us suppose that the constant marginal cost per trip of a taxi ride is $5, and that the average taxi has a capacity of 20 trips per day. Let the demand function for taxi rides be given by D(P)1200 − 20P where demand is measured in rides per day, and price is measured in dollars. Assume that the industry is perfectly competitive. • What is the competitive equilibrium price per ride? What is the equilibrium number of rides per day? How many taxicabs will there be in equilibrium? • In 1995 costs had not changed, but the demand curve for taxicab rides had become D(P) = 1220 − 20P. If the taxi operated every day, what was the profit per taxicab license per year? • If the interest rate was 10% and costs, demand, and the number of licenses were expected to remain constant forever, what would be the market price of a taxicab license?