Context

The idea that transactions in a marketplace work like an invisible hand is to some extent the idea that when a person chooses to buy an item at a given price, they are happy with the deal. There is no coercion. If the person really does not like the deal, they simply walk away.

This week's discussion will give you an opportunity to explore direct and indirect price discrimination within the context of a hypothetical scenario.

Instructions

For this discussion, use the following hypothetical scenario as the basis for your response:

• Your business partner is strongly opposed to your proposal to charge your largest customers lower prices for your web-based services than what you will charge your smaller customers. She is arguing it is unethical, unfair, and possibly illegal.

Address the following in your discussion post:

• Make a case that both groups of customers will be satisfied with the deal and that this is a perfectly legal form of pricing in a business-to-customer relationship.
  • What degree is this type of price discrimination?
  • How will the plan increase revenue?
  • Why will both groups of customers be satisfied with the deal?
  • Why is this a legal form of pricing?
• Use evidence from your textbook or other reputable sources to support your case to your business partner.

32

Jing Company was started on January 1, Year 1 when it issued common stock for $40,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $18,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,500. The equipment had a five-year useful life and a $6,500 expected salvage value.

Assume that Jing Company earned $27,000 cash revenue and incurred $17,000 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $10,100, the amount of net income or (loss) appearing on the December 31, Year 3 income statement would be:

-2600

6100

3400

5200

Introducing a New Product

Consider a firm that is introducing a new product. The firm identified 300 potential customers whose probability of purchasing the product depends on age and gender as follows:

Using the spreadsheet of customer data provided, estimate the average number of product demand in each city: New York, Chicago, Los Angeles, and Seattle. (You may use any method you would like.)

Multiple Choice Question 91

Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Blossom Corporation purchased computer equipment, installation and training for a total cost of $179010 on March 15, 2018. Estimated standalone fair values of the equipment, installation and training are $94500, $74400 and $30000 respectively. The journal entry to record the transaction on March 15, 2018 will include a

Multiple Choice Question 102

Wildhorse Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1600000 each quarter. The total contract price is $19194000 and Wildhorse estimates total costs of $18200000. Wildhorse estimates that the building will take 3 years to complete, and commences construction on January 2, 2018.

At December 31, 2019, Wildhorse Construction estimates that it is 70% complete with the building; however, the estimate of total costs to be incurred has risen to $18450000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2019 for Wildhorse as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit?

Multiple Choice Question 106

Ivanhoe Construction Corporation contracted to construct a building for $7540000. Construction began in 2018 and was completed in 2019. Data relating to the contract are summarized below:

Ivanhoe uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2018, and 2019, respectively, Ivanhoe should report gross profit of

Multiple Choice Question 111

Wildhorse, Inc. began work in 2018 on contract #3814, which provided for a contract price of $21225000. Other details follow:

Assume that Wildhorse uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2018 is

Selected balance sheet account balances are:                                             VIZQUEL COMPANY

                                                                                                                                December 31

                                                                                                                   2002                                      2001

Cash                                                                                                     $ 200,000                             $ 300,000

Accounts Payable                                                                                   60,000                                   80,000

Accounts Receivable                                                                            180,000                                 140,000

Salaries Payable                                                                                      12,000                                     6,000

Land                                                                                                        120,000                                 140,000            

Merchandise Inventory                                                                        100,000                                 160,000

Prepaid Rent                                                                                            50,000                                  45,000

Unearned Consulting Revenue                                                             70,000                                   50,000

Income statement items for the year are:

Sales                                                                                                       $800,000

Consulting Fees                                                                                    $200,000

Cost of Goods Sold                                                                             400,000              

Salary Expense                                                                                        90,000

Depreciation Expense                                                                             40,000

Rent Expense                                                                                       100,000

Cash collections from customers during 2002 amounted to:

Cash received from consulting services during 2002 was:

Total cash collected amounted to:

Cash payments to suppliers for merchandise inventory during 2002 amounted to:

Cash payments for salary during 2002 amounted to:

Cash payments for rent during 2002 amounted to:

Cash payments for depreciation during 2002 amounted to:

Total cash paid for operating activities amounted to:

Cash from operating activities during 2002 is:

Net income for Vizquel Company

Cash Receipts
The sales budget for Perrier Inc. is forecasted as follows:

To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:

60 percent in the month of sale.

20 percent in the month following sale.

15 percent in the second month following sale.

5 percent uncollectible.

The company gives a 1 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $29,000, of which $8,000 represents uncollected March sales and $21,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.

Cash Receipts
The sales budget for Perrier Inc. is forecasted as follows:

To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:

60 percent in the month of sale.

20 percent in the month following sale.

15 percent in the second month following sale.

5 percent uncollectible.

The company gives a 1 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $29,000, of which $8,000 represents uncollected March sales and $21,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.

Cash Receipts
The sales budget for Perrier Inc. is forecasted as follows:

To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:

• 60 percent in the month of sale.
• 20 percent in the month following sale.
• 15 percent in the second month following sale.
• 5 percent uncollectible.

The company gives a 2 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $22,000, of which $7,000 represents uncollected March sales and $15,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.

Smokey's Garage, Inc., provides routine auto diagnostics for customers in the Atlanta, Georgia, metropolitan area. Tests are supervised by skilled mechanics using equipment produced by two leading competitors in the auto test equipment industry. Staff at the company estimate that 4 tests per hour could be performed if they added another Sunny Tune System (STS) machine and 6 tests per hour could be performed on a new machine, the Car Care Tower (CCT). The STS can be leased at a cost of $5,000 per month, and the CCT can be leased at a rate of $9,000 per month. Labor to operate either of the machines would cost $3,000 per month. All other costs are fixed. On average, each machine is operated 25 eight-hour days per month. Smokey’s receives $15 for each test performed.

A. Compute and interpret the net marginal revenue products for the two types of equipment?

B. Should the company lease more STS machines? What about more CCT machines? Explain your answer.