A friend owns a hotel that gets a lot of seasonal business. The average total cost per day of running the hotel is $75. She tells you that during the off-season (when there are a lot of empty rooms), she had someone offer her $70 for a room. She indignantly tells you she turned the offer down since it was less than her average cost. Was that a good decision? Explain your answer in detail.
In: Economics
Morrison Hotel uses its banquet room to host parties, dinner dances, and business meetings. The hotel serves meals and provides a variety of services for each event. A local consultant analyzed recent cost data and estimated the total cost function per event to be as follows: Y = $1,000 + $9.00 x Assuming that Y represents total cost and x equals the number of guests, use this equation to answer the following questions:
a. If the hotel charges $25.00 per guest, how many guests must attend for the hotel to break even at each event?
b. If the hotel charges $28.00 per guest, how many guests must attend for the hotel to break even at each event?
c.. If the hotel charges $28.00 per guest, would you advise this hotel to host events for 50 or fewer guests? Why or why not?
Durango Mountain Bike Company wants to open a bicycle repair shop in a suburb of a major metropolitan area. The industry association estimates that 20 percent of bicycles are repaired by similar service companies and that the average owner spends $100 per bicycle on maintenance each year. The census and local chamber of commerce data indicate that there are 10,000 bicycles in the county. Three other competitors exist within a twenty-five-mile radius of the proposed business location. Based on a consumer survey, the owners believe that they can capture 30 percent of the market in the first year of operation. Based on these data, address the following requirements:
a. What is the potential number of bicycles likely to be commercially repaired?
b. What is the total potential bicycle repair revenue available in the market?
c. How much revenue can Durango Mountain Bike expect to generate?
In: Accounting
Wildlife Escapes generates average revenue of $6,250 per person on its 5-day package tours to wildlife parks in Kenya. The variable costs per person are as follows:
Airfare
$1,100
Hotel accommodations
1,950
Meals
900
Ground transportation
600
Park tickets and other costs
700
Total
$5,250
Annual fixed costs total $590,000.
|
1. |
Calculate the number of package tours that must be sold to break even. |
|
2. |
Calculate the revenue needed to earn a target operating income of $92,000. |
|
3. |
If fixed costs increase by $29,500, what decrease in variable cost per person must be achieved to maintain the breakeven point calculated in requirement 1? |
|
4. |
The general manager at Wildlife Escapes proposes to increase the price of the package tour to $7,750 to decrease the breakeven point in units. Using information in the originalproblem, calculate the new breakeven point in units. What factors should the general manager consider before deciding to increase the price of the package tour? |
In: Accounting
Let’s return to Tallahassee hotel market we considered in Problem Set 1, but now from the perspective of a hotel manager. Consider a hotel which can supply an unlimited number of hotel rooms at the constant marginal cost c = 20 per room per night, so that the hotel’s total cost function is given by C(q) = 20q. Assume that demand for hotel rooms in Tallahassee takes two possible values: on game days, demand is described by the demand curve q = 100−p, while on non-game-days demand is described by the demand curve q = 60 − 2p.
1. First suppose that the hotel acts as a price taker.
(a) What does it mean for the hotel to act as a price taker? What condition determines a price taker’s optimal supply decision?
(b) Assuming the hotel acts as a price taker, what will be the equilibrium price and quantity sold on game days? What about on non-game-days? (Remember, the hotel’s marginal cost is constant!)
(c) Briefly discuss, without solving, how your results in (b) would change if the hotel instead had increasing marginal costs (say for example MC(q) = q rather than MC = 20).
In: Economics
Consider a hotel which can supply an unlimited number of hotel rooms at the constant marginal cost c = 20 per room per night, so that the hotel’s total cost function is given by C(q) = 20q.1 Assume that demand for hotel rooms in Tallahassee takes two possible values: on game days, demand is described by the demand curve q = 100 − p, while on non-game-days demand is described by the demand curve q = 60 − 2p.
First suppose that the hotel acts as a price taker.
(a) What does it mean for the hotel to act as a price taker? What condition determines a price taker’s optimal supply decision?
(b) Assuming the hotel acts as a price taker, what will be the equilibrium price and quantity sold on game days? What about on non-game-days? (Remember, the hotel’s marginal cost is constant!)
(c) Briefly discuss, without solving, how your results in (b) would change if the hotel instead had increasing marginal costs (say for example MC(q) = qrather than MC = 20).
In: Economics
Determine whether each of the following is true or false:
In the short run, insurance on your property is a fixed cost.
In the short run, the heating of your warehouse is a fixed cost.
In the long run, there are more fixed costs than in the short run.
Assume that you run a concession stand at a small movie theater selling popcorn. Each day you must pay the theater management $50, so this is your fixed cost. If you are able to sell 100 boxes of popcorn each day, the variable cost per box is $0.15. Use these figures to determine average fixed cost, average variable cost, and average total cost.
Based on the following table, where do diminishing marginal returns begin to set in? Explain.
| Machines | Daily Output |
| 1 | 300 |
| 2 | 700 |
| 3 | 1,000 |
| 4 | 1,200 |
| 5 | 1,300 |
| 6 | 1,300 |
5. If fixed costs are $100 and variable costs are $200 at an output level of 30 units, what are average fixed costs, average variable costs, and average total costs?
In: Economics
Phillip is planning on opening an electronics store. He will run it for only 1 year. The initial cost for opening a store is 500K and it will generate an EBIT of 800k at the end of year for sure. Risk-free rate is 5%, tax rate is 35%. Suppose John’s current wealth is 50k. He can borrow money from a bank. Bank knows that his electronic store will generate EBIT of 800k at the end of year for sure.
In this situation, would he want to open the electronic store?
What is the value of his equity of the electronic (at t=0) if he opens it?
If he opens the restaurant at t=0 and sells the entire ownership of the electronic store to Zach at t=0, with what price can Phillip sell the ownership? How much return did Phillip make relative to his investment at t=0?
In: Accounting
Question1
1.1Complete the table
Tracey started a business. During the first month the following transactions occurred.
Example: Bought a truck for R200 000 cash
+ 200K (Non-current asset or NCA) and -200K Bank : You are required to show the signs.
|
Assets = |
Owner’s equity + |
Liabilities |
|
|
1 |
|||
|
2 |
|||
|
3 |
|||
|
4 |
|||
|
5 |
|||
|
Total |
1.2 Nayika Ltd is in the process of analysing a project which they call Project Extend. The relevant cash flows for the project are shown in the table below. Nayika’s cost of capital is 13%. Complete the table and show basic workings after the questions
|
Project Extend |
Factor |
PV amount |
|
|
Initial Investment |
R1000 000 |
||
|
Year |
Cash Inflows(Rands) |
||
|
1 |
180 000 |
||
|
2 |
200 000 |
||
|
3 |
380 000 |
||
|
4 |
490 000 |
||
|
5 |
250 000 |
||
|
Total |
|||
In: Accounting
Anil is planning a birthday party at an amusement park for his younger daughter and her friends. The manager of the park is considering whether to use uniform pricing or two-part-pricing. Anil's willingness to pay for rides for the party is p = 25 - 0.5Q, where p is the ticket price per ride and Q is the number of rides. The amusement park has a marginal cost of $5 for each additional ride. Its fixed cost for handling the party is $20.
a. Create a spreadsheet with quantity, price, consumer surplus, revenue, marginal revenue, cost, marginal cost, and profit as column headings. Fill in the spreadsheets cells for Q = 5 to Q = 50 in increments of 5 units. If the manager uses uniform pricing, what is the profit maximizing ticket price per ride, the number of rides, and the profit earned by the park?
b. Suppose that the manager uses two-part pricing: an entry fee for the entire party of young girls and price per ride. Calculate the profit-maximizing entry fee if the price per ride is the same as the monopoly price that you determined in part a. Calculate the total profit earned by the park.
c. Now suppose the manager uses two-part-pricing with a per-ride price equal to marginal cost and a profit-maximizing entry fee. Determine the price per ride, the number of rides, and the total profit (including profit from ticket sales and the entry fee) in this case.
In: Economics
Review Question
1. What is sales revenue forecasting?
2. What types of data are needed to forecast sales or revenues?
3. What is cost estimation?
4. What is the first step managers need to complete when estimating costs?
20. How does technology affect costs?
22. Identify three environmental factors that affect business decisions related to costs.
25. How does technological innovation generally affect a firm' s costs?
27. What is meant by the learning curve?
28. What are controllable costs?
Exercise and Problems
6. Mega Profits Company estimated its annual total cost function to be: Y = $150,000 + $.57 x Assuming that Y represents total cost and x equals the number of units sold, use this equation to answer the following questions:
a. What is the firm' s total fixed cost?
b. What is the firm' s variable cost per unit?
c. Compute total costs if the firm sells 100,000 units.
d. Compute total costs if the firm sells 200,000 units.
e. If the firm' s product sells for $1.00, how many units does the firm need to sell to break even?
f. If the firm' s product sells for $1.50, how many units does the firm need to sell to break even?
7. Morrison Hotel uses its banquet room to host parties, dinner dances, and business meetings. The hotel serves meals and provides a variety of services for each event. A local consultant analyzed recent cost data and estimated the total cost function per event to be as follows: Y = $1,000 + $9.00 x Assuming that Y represents total cost and x equals the number of guests, use this equation to answer the following questions:
a. What is the firm' s total fixed cost per event?
b. What is the firm' s variable cost per guest?
c. Compute total costs if 50 guests attend the event.
d. Compute total costs if 100 guests attend an event.
e. If the hotel charges $25.00 per guest, how many guests must attend for the hotel to break even at each event?
f. If the hotel charges $28.00 per guest, how many guests must attend for the hotel to break even at each event?
g. If the hotel charges $28.00 per guest, would you advise this hotel to host events for 50 or fewer guests? Why or why not?
3. Durango Mountain Bike Company wants to open a bicycle repair shop in a suburb of a major metropolitan area. The industry association estimates that 20 percent of bicycles are repaired by similar service companies and that the average owner spends $100 per bicycle on maintenance each year. The census and local chamber of commerce data indicate that there are 10,000 bicycles in the county. Three other competitors exist within a twenty-five-mile radius of the proposed business location. Based on a consumer survey, the owners believe that they can capture 30 percent of the market in the first year of operation. Based on these data, address the following requirements:
a. What is the potential number of bicycles likely to be commercially repaired?
b. What is the total potential bicycle repair revenue available in the market?
c. How much revenue can Durango Mountain Bike expect to generate?
In: Accounting