Monopoly behavior (Chapter 26 in the book)

Problem 1. Suppose you want to open an amusement park. Your estimate of the daily attendance is 1000 people. Further, you expect that each person will demand

x(p)= 50-50p rides, where p is the price per ride. All people are the same, and there cannot be negative rides. The marginal cost of a ride is zero.

(a) What is each person’s inverse demand for rides?

(b) How many rides per person will maximize your profits?

(c) What will be the profit-maximizing price per ride?

(d) What will be your profit per person?

(e) What is the Pareto efficient price per ride?

(f) How many rides will be purchased at the Pareto efficient price by a single person?

(g) Ho much consumer surplus per person will be generate at Pareto efficient price and quantity?

(h) If you decide to use a two-part tariff, what would be an admission fee and a price per ride for a single person?

Washington County’s Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, long runway would enable the airport to handle the midsize jets used on many domestic flights. Data pertinent to the board’s decision appear below.

In addition to the preceding data, two other facts are relevant to the decision. First, a longer runway will require a new snowplow, which will cost $155,000. The old snowplow could be sold now for $15,500. The new, larger plow will cost $13,000 more in annual operating costs. Second, the County Board of Representatives believes that the proposed long runway, and the major jet service it will bring to the county, will increase economic activity in the community. The board projects that the increased economic activity will result in $66,000 per year in additional tax revenue for the county.

In analyzing the runway proposal, the board has decided to use a 10-year time horizon. The county’s hurdle rate for capital projects is 6 percent.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

1. 1. Prepare a net-present-value analysis of the proposed long runway.

2. 2. Should the County Board of Representatives approve the runway considering NPV?

3. 3-a. Which of the data used in the analysis are likely to be most uncertain?

4. 3-b. Which of the data used in the analysis are likely to be least uncertain?

• Req 1
• Req 2
• Req 3A
• Req 3B

Prepare a net-present-value analysis of the proposed long runway. (Round your "Annuity discount factor" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

Should the County Board of Representatives approve the runway considering NPV?

Which of the data used in the analysis are likely to be most uncertain? (Select which of the following statements (is) are true by selecting an "X".)

6–C. Part 3. Proprietary Fund Financial Statements

Required:

Prepare, in good form, for the proprietary funds accounted for in Parts 1 and 2, the following:

(1) A Statement of Revenues, Expenses, and Changes in Fund Net position for the Year Ended December 31, 2017.

(2) A Statement of Net position, as of December 31, 2017.

(3) A Statement of Cash Flows for the Year Ended December 31, 2017. Include restricted assets as a part of cash and cash equivalents for this statement. (Assume any materials and labor attributable to construction in process were paid by year end).


Previous Information

6–C. Part 1. Internal Service Fund Transactions

The Stores and Service Fund of the City of Monroe had the following account balances as of January 1, 2017:

Required:

a. Open a general journal for the City of Monroe Stores and Service Fund and record the following transactions.

(1) A budget was prepared for FY 2017. It was estimated that the price charged other departments for supplies should be 1.25% of cost to achieve the desired breakeven for the year.

(2) The amount due from other funds as of January 1, 2017, was collected in full.

(3) During the year, supplies were ordered and received in the amount of $307,000. This amount was posted to accounts payable.

(4) $15,000 of the advance from the Water Utility Fund, originally provided for construction, was repaid. No interest is charged.

(5) During the year, supplies costing $250,560 were issued to the General Fund, and supplies costing $46,400 were issued to the Water Utility Fund. These funds were charged based on the previously determined markup ($ 313,200 to General Fund and 58,000 to the Water Utility Fund).

(6) Operating expenses, exclusive of depreciation, were recorded in accounts payable as follows: Purchasing, $15,000; Warehousing, $16,900; Delivery, $17,500; and Administrative, $9,000.

(7) Cash was received from the General Fund in the amount of $310,000 and from the Water Utility Fund in the amount of $50,000.

(8) Accounts payable were paid in the amount of $365,000.

(9) Depreciation in the amount of $10,000 was recorded for buildings and $4,600 for equipment.

b. Post the entries to the Stores and Service Fund ledger (t-accounts).

c. Prepare and post an entry closing all nominal accounts to Net position. Compute the balance in the net position accounts, assuming there are no Restricted Net position.

6–C. Part 2. Enterprise Fund Transactions

The City of Monroe maintains a Water and Sewer Fund to provide utility services to its citizens. As of January 1, 2017, the City of Monroe Water and Sewer Fund had the following account balances:

Required:

a. Open a general journal for the City of Monroe Water and Sewer Utility Fund and record the following transactions.

(1) During the year, sales of water to non-government customers amounted to $1,018,000 and sales of water to the General Fund amounted to $37,000.

(2) Collections from non-government customers amounted to $976,000.

(3) The Stores and Services Fund repaid $15,000 of the long-term advance to the Water and Sewer Fund.

(4) Materials and supplies in the amount of $261,000 were received. A liability in that amount was recorded.

(5) Materials and supplies were issued and were charged to the following accounts: cost of sales and services, $169,500; selling, $15,000; administration, $18,000; construction work in progress, $50,000.

(6) Payroll costs for the year totaled $416,200 plus $34,200 for the employer’s share of payroll taxes. Of that amount, $351,900 was paid in cash, and the remainder was withheld for taxes. The $450,400 (416,200 + 34,200) was distributed as follows: cost of sales and services, $265,800; sales, $43,900; administration, $91,400; construction work in progress, $49,300.

(7) Bond interest (6½%) in the amount of $162,500 was paid.

(8) Interest in the amount of $17,000 (included in 7 above) was reclassified to Construction Work in Progress.

(9) Construction projects at the water treatment plant (reflected in the beginning balance of construction in process) were completed in the amount of $203,000, and the assets were placed in service. Payments for these amounts were made in the previous year (no effect on 2017 Statement of Cash Flows).

(10) Collection efforts were discontinued on bills totaling $2,890. The unpaid receivables were written off.

(11) An analysis of customer receivable balances indicated the Estimated Uncollectible Accounts needed to be increased by $5,500.

(12) Payment of accounts payable amounted to $302,000. Payments of payroll taxes totaled $95,200.

(13) Supplies transferred from the Stores and Services Fund amounted to $58,000. Cash in the amount of $50,000 was paid to the Stores and Services Fund for supplies.

(14) Depreciation expense for the year was computed to be $282,000.

(15) In accord with the revenue bond indenture, $25,000 cash was transferred from operating cash to restricted assets.

b. Post the entries to the Water and Sewer Fund ledger (t-accounts).

c. Prepare and post an entry closing all nominal accounts to Net position. Compute the balance in the net position accounts, assuming the only restricted assets are those identified with the bond indenture and the outstanding bonds are associated with the purchase of capital assets.

Warm Hands, a small company based in Prince Edward Island, manufactures and sells two types of lightweight gloves for runners—Warm and Cozy. Current revenue, cost, and unit sales data for the two products appear below:

Fixed expenses are $2,880 per month.

Required:

1. Assuming the sales mix above, do the following:

a. Prepare a contribution format income statement showing both dollars and percentage columns for each product and for the company as a whole. (Round percentage answers to 2 decimal places.)

b. Compute the break-even point in dollars for the company as a whole and the margin of safety in both dollars and percentage of sales. (Do not round your intermediate calculations. Round percentage answer to 2 decimal places.)

c. Compute the break-even point in units for the company as a whole and the margin of safety in both units (pairs of gloves) and percentage of sales. (Round percentage answer to 2 decimal places.)

d. Compute how many pairs of gloves must be sold overall if the company wants to make an after-tax target profit of $6,300 and the tax rate is 30%. Assume that the sales mix remains the same as shown above.

2. The company has developed another type of gloves that provide better protection in extreme cold, Toasty, which the company plans to sell for $17.00 per pair. At this price, the company expects to sell 1,000 pairs per month of the product. The variable expense would be $13.60 per pair. The company’s fixed expenses would not change.

a. Prepare another contribution format income statement, including sales of Toasty (sales of the other two products would not change). (Round percentage answers to 2 decimal places.)

b. Compute the company’s new break-even point in dollars for the company as a whole and the new margin of safety in both dollars and percentage of sales. (Round your break-even sales to the nearest whole dollar amount and percentage answer to 2 decimal places.)

Warm Hands, a small company based in Prince Edward Island, manufactures and sells two types of lightweight gloves for runners—Warm and Cozy. Current revenue, cost, and unit sales data for the two products appear below:

Fixed expenses are $2,520 per month.

Required:

1. Assuming the sales mix above, do the following:

a. Prepare a contribution format income statement showing both dollars and percentage columns for each product and for the company as a whole. (Round percentage answers to 2 decimal places.)

b. Compute the break-even point in dollars for the company as a whole and the margin of safety in both dollars and percentage of sales. (Do not round your intermediate calculations. Round percentage answer to 2 decimal places.)

c. Compute the break-even point in units for the company as a whole and the margin of safety in both units (pairs of gloves) and percentage of sales. (Round percentage answer to 2 decimal places.)

d. Compute how many pairs of gloves must be sold overall if the company wants to make an after-tax target profit of $10,500 and the tax rate is 30%. Assume that the sales mix remains the same as shown above.

2. The company has developed another type of gloves that provide better protection in extreme cold, Toasty, which the company plans to sell for $23.00 per pair. At this price, the company expects to sell 700 pairs per month of the product. The variable expense would be $18.40 per pair. The company’s fixed expenses would not change.

a. Prepare another contribution format income statement, including sales of Toasty (sales of the other two products would not change). (Round percentage answers to 2 decimal places.)

b. Compute the company’s new break-even point in dollars for the company as a whole and the new margin of safety in both dollars and percentage of sales. (Round your break-even sales to the nearest whole dollar amount and percentage answer to 2 decimal places.)

A: Paul Peterson is the inventory manager for Office Supplies, Inc., a large office supply warehouse. The annual demand for paper punches is 20,000 units. The ordering cost is $100 per order, and the carrying cost is $5 per unit per year. What is the equation/formula to compute the economic order quantity? What is the EOQ?

B: Paul Peterson is considering manufacturing hole-punch devices. As in Part A, above, the annual demand is 20,000 units. The setup cost is $100 per order, and the carrying cost is $5 per unit per year. The demand rate is 100 units per day and the production rate is 150 units per day. What is the equation/formula to determine the economic lot size? What is the answer?

C: Paul Peterson (see Part B above) has found a supplier of hole-punches that offers quantity discounts. The annual demand is 20,000 units, the ordering cost is $100 per order, and the carrying cost is 0.5 of the unit price. For quantities that vary from 0 to 1,999, the unit price is $10. The price is $9.98 for quantities that vary from 2,000 units to 3,999 units and $9.96 for quantities that vary from 4,000 to 10,000 units. Should Paul take the quantity discount? Show calculation of EOQ and Total Cost for each of the 3 options. Hint: compute the economic order quantity. Hint: Complete the table below. shows the results of the total cost analysis. Discount Unit Order Material Ordering Carrying Total Number Price Quantity Cost Cost Cost Cost 1 $10 2 9.98 2,000 3 9.96 4,000

D: Kimberly Jones is in charge of four inventory items. The inventory demand and sales price for each item is summarized in the following table. Using ABC analysis, how should these inventory items be controlled? Demand Price Item 1 20,000 $ 10.00 Item 2 8,000 100.00 Item 3 7,000 5.00 Item 4 200 5.00 Hint: Using ABC analysis, determine the total annual dollar value of each item. Complete the Table below. Also show cumulative % of items and cumulative percentage of total cost. (Use “cost” for “price”). This can be used to categorize each inventory item. Which item should be carefully controlled? Cumulative Cumulative Item Annual Unit Annual $ Percentage Percentage Number Demand Cost Volume of Items of Cost 100.000 Total

E: Fun and Games, Inc. sells a variety of electronic games to children and adults. Annual demand for super Namco games is 360. Holding cost is $1 per game and ordering cost is $100 per order. Fun and Games, Inc., has determined that the economic order quantity should be 268 units given the foregoing data. What happens to the order quantity if annual demand is underestimated by 50%? In other words, what happens if actual annual demand is 540 units?

Environmental fate of medications Medications can enter wastewater management systems either through human excretions or through improper disposal. Many medications are not effectively treated by current wastewater management processes and therefore are discharged by wastewater treatment plants. Antidepressants are some of the most commonly prescribed medications in the United States, and many antidepressants are not effectively managed by wastewater treatment plants. a. A wastewater treatment plant discharges to Boulder Creek in Colorado at a rate of 64 million L/day, and the stream flow, upstream of the wastewater discharge point, is 1110 L/s. If the concentration of the antidepressant venlafaxine (Effexor) measured in the creek water is 10 ng/L, what is the mass discharged per day from the wastewater treatment plant, assuming that there are no sources other than the wastewater treatment plant, and assuming that the drug rapidly equilibrates among sediment, fish, and water? What is the concentration of the medication in the wastewater treatment plant effluent? BCF = 40.27 KOC = 3.162 Organic sediment = 15 ppm Biota concentration = 5 g/100 m3 b. A man fishing near the outflow point of Boulder Creek eats 0.2 kg of fish from the creek. How much venlafaxine will he ingest? One dose of Effexor contains 75 mg of venlafaxine. What percentage of a dose will the fisherman ingest?

Belgium Co. is constructing a tunnel for 800 million. Construction began in 2011 and is estimated to be completed in 2016. At December 31, 2013, Belgium has incurred costs totaling 356 million with 85 million of that incurred in 2013, 143 in 2012, and 128 in 2011. Belgium received 356 million in total progress payments to date but future activity is tenuous and its cost numbers are highly uncertain. What amount of revenue should Belgium Co. recognize for the year ended December 31, 2013?

A. No revenue should be recognized until the contract is completed in 2016.
B. 356 million.
C. 271 million.
D. 85 million.

On March 31, 2021, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $266,600, with estimated salable rock of 31,000 tons. During 2021, Belotti loaded and sold 5,500 tons of rock and estimated that 25,500 tons remained at December 31, 2021. At January 1, 2022, Belotti estimated that 16,500 tons still remained. During 2022, Belotti loaded and sold 11,000 tons. Belotti uses the units-of-production method. Belotti would record depletion in 2022 of: A) 149,470 B) 148,390 C) 146,190 d) 159,310