QUESTION 11

In the short-run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is

QUESTION 12

Assume that a firm's marginal revenue barely exceeds marginal cost. To maximize profit, teh firm should:

QUESTION 13

In the short run, a perfectly competitive firm will stay in business as long as:

QUESTION 14

Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price taker would:

QUESTION 15

Where is the "short-run shut down point" for a perfectly competitive firm?

16. Total profit for a firm is calculated as

17. In the short run, if the price is less than average variable cost, a firm operating in a competitive market will

18. When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated?

19. In the long run, a firm will enter a competitive industry if

20. Which of the following statements is not correct?

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 2,070 pizzas at an average selling price of $16 per pizza and for 230 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Problem 19-01

Management believes it can sell a new product for $8.50. The fixed costs of production are estimated to be $5,500, and the variable costs are $3.50 a unit.

1. Complete the following table at the given levels of output and the relationships between quantity and fixed costs, quantity and variable costs, and quantity and total costs. Round your answers to the nearest dollar. Enter zero if necessary. Use a minus sign to enter losses, if any.

   Quantity		Total Revenue	Variable Costs	Fixed Costs	Total Costs	Profits (Losses)
   0		$	$	$	$	$
   500		$	$	$	$	$
   1,000		$	$	$	$	$
   1,500		$	$	$	$	$
   2,000		$	$	$	$	$
   2,500		$	$	$	$	$
   3,000		$	$	$	$	$

2. Determine the break-even level using the above table and use the Exhibit 19.5 to confirm the break-even level of output. Round your answers for the break-even level to the nearest whole number. Round your answers for the fixed costs, variable costs, total costs, and profits (losses) to the nearest dollar. Enter zero if necessary. Use a minus sign to enter losses, if any.

   Quantity	Total Revenue	Variable Costs	Fixed Costs	Total Costs	Profits (Losses)
   	$	$	$	$	$

3. What would happen to the total revenue schedule, the total cost schedule, and the break-even level of output if management determined that fixed costs would be $7,500 instead of $5,500? Round your answer for the break-even level of output to the nearest whole number.

   If fixed costs were $7,500 instead of $5,500 the total revenue schedule does not change and the total cost schedule increases.

   The new break-even level of output is   units.

On January 1, 20x2, Entity A granted a franchise to Entity B involving a cosmetic stall

The franchise agreement requires:

Entity B to pay non-refundable initial franchise fee amounting to 900,000 within ten days from the signing of document evidencing the franchise agreement.
The franchise agreement requires Entity B to pay contingent franchise fee equivalent to 10% of its sales revenue to Entity A. Entity B paid the initial franchise fee on January 10, 20x2.
In relation to initial franchise fee on January 10, 2021

Entity A is required to render the following separate and distinct performance obligations:
a. To construct the food stall of Entity B which has stand-alone selling price of 500,000
b. To allow Entity B use its registered trademark and tradename for a period of 20 years starting January 1, 20x2 which has stand-alone selling price of 200,000
C. To supply 5,000 units of raw materials to entity B which has stand-alone selling price of 300,000

On June 30, 20x2. Entity A completed the construction of Entity B’s cosmetic stall. As of December 31, 20x2, Entity has already delivered 2,000 units of raw materials to Entity B.
B commenced its operations on October 1, 20x2 and it reported sales revenue amounting to 330,000 for the period ended December 31, 20x2.

What is
A. the total revenue to be recognized by A for the period ended December 31, 20x2.
B. the unearned revenue to be reported by A on December 31, 20x2

A uniform pricing monopolist has the following cost function and faces the following demand curve for its product:

C(y) = 20y

P(y) = 100 ? y

(a) Find the monopolist quantity, price, and deadweight loss relative to the perfectly competitive outcome. Draw a diagram labeling the perfectly competitive outcome as A, and the monopolist outcome as B. Be sure to include the marginal cost and marginal revenue curves in your diagram.

(b) There are two possible scenarios for the monopolist:

i. The government sets a price ceiling of $40/unit in which case the monopolist does not invest in any R&D because it is wary of future government regulation.

ii. There is no government regulation, so then the monopolist invests in R&D which then changes the cost function so that MC = 0. Which scenario has higher welfare (ignore the cost of R&D for producer surplus)? Which scenario do the consumers prefer? Explain.

(c) For plan (i), the marginal revenue curve features a discontinuity at some Q. Explain intuitively why the marginal revenue curve has this discontinuity.

(d) Go back to your solution in part a. Suppose now the government allows one other identical firm to enter this market and firms compete on quantity. Let x equal to value of marginal revenue at the monopolist output when there is only one firm. Claim: If the two firms each produce half the monopoly quantity, then MR = x for both firms at the current level of output. Is this claim true, false, or uncertain? Explain your reasoning.

Top executive officers of Baird Company, a merchandising firm, are preparing the next year’s budget. The controller has provided everyone with the current year’s projected income statement. Current Year Sales revenue $ 2,300,000 Cost of goods sold 1,725,000 Gross profit 575,000 Selling & administrative expenses 304,000 Net income $ 271,000 Cost of goods sold is usually 75 percent of sales revenue, and selling and administrative expenses are usually 10 percent of sales plus a fixed cost of $74,000. The president has announced that the company’s goal is to increase net income by 15 percent. Required The following items are independent of each other. Using Excel prepare a pro forma income statement. What percentage increase in sales would enable the company to reach its goal? The market may become stagnant next year, and the company does not expect an increase in sales revenue. The production manager believes that an improved production procedure can cut cost of goods sold by 2 percent. Prepare a pro forma income statement still assuming the President's goal to increase net income by 15 percent. Calculate the required reduction in selling & administrative expenses to achieve the budgeted net income. The company decides to escalate its advertising campaign to boost consumer recognition, which will increase selling and administrative expenses to $347,000. With the increased advertising, the company expects sales revenue to increase by 15 percent. Assume that cost of goods sold remains a constant proportion of sales. Prepare a pro forma income statement. Will the company reach its goal?

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,100 per month plus $0.06 per car washed. The company expects to wash 8,300 cars in August and to collect an average of $6.60 per car washed.

The actual operating results for August are as follows:

Required:

Calculate the company's revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

Lavage Rapide Revenue and Spending Variances For the Month Ended August 31

Revenue

Expenses:

Cleaning supplies

Electricity

Maintenance

Wages and salaries

Depreciation

Rent

Administrative expenses

Total expense

Net operating income

True/False

1. _____ The number of accounts on the chart of accounts is strictly limited.
2. _____ Every account on the chart of accounts must be identified by one of the accounting elements
3. _____ An account on the chart of accounts could be both a liability and a revenue.
4. _____ The term prepaid is usually associated with an asset account.
5. _____ Unearned revenue would usually be listed in the asset section of a chart of accounts.
6. _____ The FASB dictates to companies what their chart of accounts must look like.
7. _____ The accounting equation stays in balance except when dealing with dividends.
8. _____ Gains and losses are listed under retained earnings because they change the amount of retained earnings.
9. _____ Paying cash for prepaid insurance will not change retained earnings.
10. _____ Using electricity in June and receiving a bill from the electric company in June will result in an increase in assets during June.
11. _____ Selling inventory for a price more than what was paid will increase retained earnings.
12. _____ Amounts to be reported on the financial statement come from the accounting equation worksheet.
13. _____ Accounts receivable at the end of 2020 would become the beginning balance for accounts receivable in 2021.
14. _____ Cost of Goods Sold for the year 2020 would become the beginning balance for Cost of Goods Sold in 2021.
15. _____ Every total from the accounting equation worksheet will have a place to go on the financial statements.
16. _____ When unearned revenue is earned, liabilities are decreased.
17. _____ For revenue recognition the transaction price is adjusted for discounts and rebates that are most likely to take place.
18. _____ Allocating the transaction price to the performance obligations is not necessary if there is only one performance obligation.

(Adjusting Entries)

Uhura Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows (in thousands).

Uhura Resort

Trial Balance

August 31, 2022

Other data:

1. The balance in prepaid insurance is a 1-year premium paid on June 1, 2022.

2. An inventory count on August 31 shows AED650 of supplies on hand.

3. Annual depreciation rates are buildings (4%) and equipment (10%). Residual value is estimated to be 10% of cost.

4. Unearned rent revenue of AED3,800 should be recognized as revenue prior to August 31.

5. Salaries and wages of AED375 were unpaid at August 31.

6. Rentals of AED800 were due from tenants at August 31.

7. The mortgage note is dated 1/1/2022. The mortgage interest rate is 8% per year.

Instructions

1. Journalize the adjusting entries on August 31 for the 3-month period June 1– August 31. (Omit explanations.)

2. Prepare an adjusted trial balance on August 31.