Suppose you are considering renting an apartment in a building in which the tenants are required to pay the cost of heating their apartments. The building has several apartments, each occupying an entire floor of the building. The building has a flat roof. You are attracted to the apartment on the top floor because of the view but your friend tells you that the heat bills will be higher for that apartment than for the ones on the lower floors.

a. [3pts] Is your friend likely to be right? Explain why or why not in terms of the expected thermal energy flows in and out of the apartments.

b. [4pts] Defend your answer to a. by calculating the amount of energy required to heat the top and lower apartments for a year in btu. Include the lowest apartment assuming that it is just above the ground (no basement below it). Suppose that the floor area of each apartment is 900 sq ft (30ft x 30ft) and that the height from one floor to the next is 10ft. Use 8500 as the number of ’degree days’ in Minnesota (Figure 5.12 and definition near the top of p. 137) and the R values given in Table 5-1 of the book (1978 values).

c. [3pts] Use the answer you got in b. to calculate the difference in cost (if any) between heating the top apartment for a year ,heating a lower apartment for year, and heating the ground floor apartment for a year, supposing that the cost of gas heating is $0.80 per ’therm’. 1 therm=100,000 btu.

Fuller Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 700 units. The costs and percentage completion of these units in beginning inventory were:

A total of 9,800 units were started and 8,800 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

The ending inventory was 85% complete with respect to materials and 70% complete with respect to conversion costs.

The cost of ending work in process inventory in the first processing department according to the company’s cost system is closest to: (Round "Cost per equivalent unit" to 3 decimal places.)

Multiple Choice

$77,994

$73,308

$104,725

$89,016

Annenbaum Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 400 units. The costs and percentage completion of these units in beginning inventory were:

A total of 6,500 units were started and 5,900 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

The ending inventory was 50% complete with respect to materials and 35% complete with respect to conversion costs.

The cost of ending work in process inventory in the first processing department according to the company’s cost system is closest to: (Round "Cost per equivalent unit" to 3 decimal places.)

Multiple Choice

• $19,148

• $22,223

• $54,708

• $27,354

Hermosa, Inc., produces one model of mountain bike. Partial information for the company follows:

     
Required:
1. Complete the table. (Round your "Cost per Unit" answers to 2 decimal places.)


  
2. Calculate Hermosa’s contribution margin ratio and its total contribution margin at each sales level indicated in the table assuming the company sells each bike for $660. (Round your percentage answers to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))



4. Calculate Hermosa’s break-even point in units and sales revenue. (Round your answers to the nearest whole number.)

Product Pricing using the Cost-Plus Approach Methods; Differential Analysis for Accepting Additional Business

Night Glow Inc. recently began production of a new product, the halogen light, which required the investment of $600,000 in assets. The costs of producing and selling 10,000 halogen lights are estimated as follows:

Night Glow Inc. is currently considering establishing a selling price for the halogen light. The president of Night Glow Inc. has decided to use the cost-plus approach to product pricing and has indicated that the halogen light must earn a 10% return on invested assets.

Required:

Note: Round all markup percentages to two decimal places, if required. Round all costs per unit and selling prices per unit to the nearest whole dollar.

1. Determine the amount of desired profit from the production and sale of the halogen light.
$

2. Assuming that the product cost method is used, determine the following:

3. (Appendix) Assuming that the total cost method is used, determine the following:

4. (Appendix) Assuming that the variable cost method is used, determine the following:

5. The cost-plus approach price computed above should be viewed as a general guideline for establishing long-run normal prices; however, other considerations, such as  , could lead management to establish a different short-run price.

6. Assume that as of September 1, 7,000 units of halogen light have been produced and sold during the current year. Analysis of the domestic market indicates that 3,000 additional units of the halogen light are expected to be sold during the remainder of the year at the normal product price determined under the product cost method. On September 5, Night Glow Inc. received an offer from Tokyo Lighting Inc. for 1,600 units of the halogen light at $57 each. Tokyo Lighting Inc. will market the units in Japan under its own brand name, and no variable selling and administrative expenses associated with the sale will be incurred by Night Glow Inc. The additional business is not expected to affect the domestic sales of the halogen light, and the additional units could be produced using existing productive, selling, and administrative capacity.

a. Prepare a differential analysis of the proposed sale to Tokyo Lighting Inc. If an amount is zero, enter "0".

b. Based on the differential analysis in part (a), should the proposal be accepted?

JUST NUMBER 6 PLEASE

Product Pricing using the Cost-Plus Approach Methods; Differential Analysis for Accepting Additional Business

Night Glow Inc. recently began production of a new product, the halogen light, which required the investment of $2,340,000 in assets. The costs of producing and selling 11,700 halogen lights are estimated as follows:

Night Glow Inc. is currently considering establishing a selling price for the halogen light. The president of Night Glow Inc. has decided to use the cost-plus approach to product pricing and has indicated that the halogen light must earn a 20% return on invested assets.

Required:

Note: Round all markup percentages to two decimal places, if required. Round all costs per unit and selling prices per unit to the nearest whole dollar.

1. Determine the amount of desired profit from the production and sale of halogen lights.
$

2. Assuming that the product cost method is used, determine the following:

3. (Appendix) Assuming that the total cost method is used, determine the following:

4. (Appendix) Assuming that the variable cost method is used, determine the following:

5. The cost-plus approach price computed above should be viewed as a general guideline for establishing long-run normal prices; however, other considerations, such as the price of competing products and general economic conditions of the marketplace , could lead management to establish a different short-run price.

Feedback

6. Assume that as of September 1, 6,500 units of halogen light have been produced and sold during the current year. Analysis of the domestic market indicates that 5,200 additional units of the halogen light are expected to be sold during the remainder of the year at the normal product price determined under the product cost method. On September 5, Night Glow Inc. received an offer from Tokyo Lighting Inc. for 2,000 units of the halogen light at $292.50 each. Tokyo Lighting Inc. will market the units in Japan under its own brand name, and no variable selling and administrative expenses associated with the sale will be incurred by Night Glow Inc. The additional business is not expected to affect the domestic sales of the halogen light, and the additional units could be produced using existing productive, selling, and administrative capacity.

a. Prepare a differential analysis of the proposed sale to Video Systems Inc. If an amount is zero, enter zero "0".

Product Pricing using the Cost-Plus Approach Concepts; Differential Analysis for Accepting Additional Business

Display Labs Inc. recently began production of a new product, flat panel displays, which required the investment of $1,980,000 in assets. The costs of producing and selling 9,900 units of flat panel displays are estimated as follows:

Display Labs Inc. is currently considering establishing a selling price for flat panel displays. The president of Display Labs has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 20% rate of return on invested assets.

Required:

Note: Round all markup percentages to two decimal places. Round all costs per unit and selling prices per unit to the nearest whole dollar.

1. Determine the amount of desired profit from the production and sale of flat panel displays.
$

2. Assuming that the product cost concept is used, determine the following:

3. (Appendix) Assuming that the total cost concept is used, determine the following:

4. (Appendix) Assuming that the variable cost concept is used, determine the following:

1. 5. The cost-plus approach price   be viewed as a general guideline for establishing long-run normal prices. Other considerations, such as the price of competing products and general economic conditions of the marketplace,   lead management to establish a short-run price more or less than the cost-plus approach price.

   6. Assume that as of August 1, 5,500 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 4,400 additional units are expected to be sold during the remainder of the year at the normal product price determined under the product cost concept. On August 3, Display Labs Inc. received an offer from Video Systems Inc. for 1,700 units of flat panel displays at $247.50 each. Video Systems Inc. will market the units in Canada under its own brand name, and no selling and administrative expenses associated with the sale will be incurred by Display Labs Inc. The additional business is not expected to affect the domestic sales of flat panel displays, and the additional units could be produced using existing factory, selling, and administrative capacity.

   a. Prepare a differential analysis of the proposed sale to Video Systems Inc. If an amount is zero, enter zero "0".

   Differential Analysis
   Reject Order (Alt. 1) or Accept Order (Alt. 2)
   August 3
   	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
   Revenues	$	$	$
   Costs:
   Variable manufacturing costs
   Income (Loss)	$	$	$

   b. Based on the differential analysis in part (a), should the proposal be accepted?
   

Product Pricing using the Cost-Plus Approach Concepts; Differential Analysis for Accepting Additional Business

Display Labs Inc. recently began production of a new product, flat panel displays, which required the investment of $1,980,000 in assets. The costs of producing and selling 9,900 units of flat panel displays are estimated as follows:

Display Labs Inc. is currently considering establishing a selling price for flat panel displays. The president of Display Labs has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 20% rate of return on invested assets.

Required:

Note: Round all markup percentages to two decimal places. Round all costs per unit and selling prices per unit to the nearest whole dollar.

1. Determine the amount of desired profit from the production and sale of flat panel displays.
$

2. Assuming that the product cost concept is used, determine the following:

3. (Appendix) Assuming that the total cost concept is used, determine the following:

4. (Appendix) Assuming that the variable cost concept is used, determine the following:

5. The cost-plus approach price   be viewed as a general guideline for establishing long-run normal prices. Other considerations, such as the price of competing products and general economic conditions of the marketplace,   lead management to establish a short-run price more or less than the cost-plus approach price.

6. Assume that as of August 1, 5,500 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 4,400 additional units are expected to be sold during the remainder of the year at the normal product price determined under the product cost concept. On August 3, Display Labs Inc. received an offer from Video Systems Inc. for 1,700 units of flat panel displays at $247.50 each. Video Systems Inc. will market the units in Canada under its own brand name, and no selling and administrative expenses associated with the sale will be incurred by Display Labs Inc. The additional business is not expected to affect the domestic sales of flat panel displays, and the additional units could be produced using existing factory, selling, and administrative capacity.

a. Prepare a differential analysis of the proposed sale to Video Systems Inc. If an amount is zero, enter zero "0".

b. Based on the differential analysis in part (a), should the proposal be accepted?

1. In 1980 France had a GDP of $325 billion francs and a population of 11.78 million. In 1980 the exchange rate was 1 US dollar was equal to 1.67 francs. In 2010, France had a GDP of $435 billion euros and a population of 21.75 million. In 2010 0.8 euros was equal to 1 US Dollar. The GDP deflator was 51 in 1980 and 125 in 2010. By what percentage did France’s Real GDP per capita rise between 1980 and 2010 in U.S. dollars?

2. Identify the most commonly cited measure of inflation in the United States and explain how it is calculated. Identify and briefly discuss the some of the problems that statisticians have paid considerable attention to in recent years (your answer needs to be thorough).

3. Describe the relationship between inflation levels in prices and inflation levels for prices, wages and interest rates with respect to their ability to affect people's economic status and business outcomes (again, here be thorough and explain what happens when wages, etc. does and does not keep up with inflation).

4. Explain the differences and similarities between the GDP deflator and the CPI. Be thorough in your answer and write in complete sentences.

5. What is Hyperinflation and what are some reasons it may occur and persist? What is deflation, when does deflation usually occur, and is deflation a good or bad thing? Give examples of when each scenario happened in history as well. Again, be thorough in your answer.

6. In an imaginary economy, consumers buy only hot dogs and hamburgers. The fixed basket consists of 15 hot dogs and 8 hamburgers. A hot dog cost $2.25 in 2006 and $5.40 in 2007. A hamburger cost $5.75 in 2006 and $7.86 in 2007. Calculate the CPI for both years and then find the inflation rate.

7. In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 25 sandwiches and 40 magazines. In 2006, a sandwich cost $4.50 and a magazine cost $3.99. In 2007, a sandwich cost $5.75. If the inflation rate in 2007 was 21 percent, then how much did a magazine cost in 2007?

8. When Anders took out his first two-year membership with Maxima Gym in 2004, the fee was $525.00. He renewed his membership three times; in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $699.00. What is the OVERALL rate of inflation for Anders' gym membership?

9. In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $2.4 million. A price index for nonresidential construction was 12 in 1949, 96 in 1987, and 117.5 in 2000. Calculate the value of the courthouse in 2000 dollars and the value of the hospital in 2000 dollars and compare your answers. Which one cost more?

10. Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 156 in 2001 and 227.25 in 2006. What is Ruben's 2006 salary in 2001 dollars? What does this mean about how his purchasing power increased or decreased?

Specialized Fraud Areas

Case 4

Cindy Williams is the owner of Williams Concrete Company. Her company fabricates and supplies pre-cast concrete slabs for home construction throughout the Omaha area. Dunn Construction, one of her highest volume customers recently discovered a problem with slabs supplied by Williams Concrete. Dunn is a major home builder that focuses on the upscale housing market. In most months, Williams Concrete supplies Dunn with hundreds of pre-cast slabs.

Because of an error in the fabrication process, the concrete slabs for 23 of Dunn’s new homes did not meet basic materials requirements. This was not discovered until after the homes were completed. It has been determined that none of these homes are safe for habitation. Homeowners must move out and the slabs must be replaced at a considerable cost and months of inconvenience for the homeowners. As a result, Dunns’ reputation has suffered.

The slab fabrication process is complex and the possibility of a problem like this was not unforeseen. For this reason, Williams’ sales contracts with all vendors make it the responsibility of the purchaser to test the quality of all slabs before installation.

Dunn contends that despite this provision in the contract, Williams could be reasonably expected to supply quality slabs and they should assume the liability for the current problems. Dunn is demanding that Williams pay $20 million to cover the damages.

Write responses to the following:

1) From Williams’s point of view, is litigation or Alternative Dispute Resolution (ADR) preferred? Why?

2) From Dunn’s point of view, is litigation or ADR preferred? Why?

3) Which form of ADR could be preferred by the two companies?