Consider the market for ice cream. Suppose that this market is perfectly competitive. The cost structure of the typical ice cream producer is as follows. Average total cost is equal to ???(?)=50?+12?, average variable cost is equal to ???(?)=12?, and marginal cost is equal to ??(?)=?.
a.) Give a formula for the typical ice cream producer’s average fixed cost ???(?). What is the typical ice cream producer’s total fixed cost?
b.) How many ice cream cones will each producer sell in a long-run equilibrium in the market for ice cream?
c.) What is the long-run market equilibrium price for ice cream?
Suppose that demand for ice cream cones is given by ??=403−1300×??.
d.) How many firms will operate in the market for ice cream in a long run equilibrium?
Now, suppose that a new scientific study comes out that shows that soil pollution from rock salt (a key input for making ice cream) is extremely hazardous to human health. In response, the government decides to impose harsh re-zoning restrictions on any land once used for making ice cream. This reduces the market rent for land used to make ice cream, which in turn lowers the opportunity cost of operating an ice cream factory. This reduction in the opportunity cost of capital causes the total fixed cost of ice cream production to fall to 32, but there is no change to variable cost.
e.) Give formulas for the typical ice cream producer’s new average total cost curve ???(?) and marginal cost curve ??(?).
f.) If the market for ice cream cones starts in its initial long run equilibrium, with the number of firms computed in d.), how much profit will ice cream firms make in the short run?
g.) How many firms will operate in the market for ice cream in the new long-run equilibrium?
In: Economics
|
Dobson Manufacturing Company uses a job order cost system with manufacturing overhead applied to products on the basis of direct labor dollars. At the beginning of the most recent period, the company estimated its total direct labor cost to be $50,300 and its total manufacturing overhead cost to be $90,540. |
|
Several incomplete general ledger accounts showing the transactions that occurred during the most recent accounting period follow: |
| Required: | |
| 1. |
Calculate the predetermined overhead rate. |
| 2. |
Fill in the missing values in the T-accounts. |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3.
|
| DOBSON MANUFACTURING COMPANY | |
| Cost of Goods Manufactured Report and Sold | |
| Direct Materials Used in Production | |
| Total Current Manufacturing Costs | $0 |
| Total Work in Process | $0 |
| Cost of Goods Manufactured | |
| Cost of Goods Available for Sale | $0 |
| Unadjusted Cost of Goods Sold | |
| Adjusted Cost of Goods Sold | |
|
|||||||||||||||
In: Accounting
LearnCo
Sales Budget
| LearnCo Sales Budget For the Year Ending December 31, 20Y2 |
|||
Product |
Unit Sales Volume |
Unit Selling Price |
Total Sales |
| Basic Abacus | 36000 | $8 | $288,000 |
| Deluxe Abacus | 36000 | 12 | 432,000 |
| Totals | 72,000 | $720,000 | |
Production Budget
| LearnCo Production Budget For the Year Ending December 31, 20Y2 |
||
| Units Basic | Units Deluxe | |
| Expected units to be sold (from Sales Budget) | 36000 | 36000 |
| Desired ending inventory, December 31, 20Y2 | 1,000 | 3,000 |
| Total units available | 37000 | 39000 |
| Estimated beginning inventory, January 1, 20Y2 | (1,050) | (2,100) |
| Total units to be produced | 35950 | 36900 |
Direct Materials Purchases Budget
| Direct Materials Data Table | ||
| Wood Pieces | Beads | |
| Packages required per unit: | ||
| Basic abacus | 1 | 2 |
| Deluxe abacus | 2 | 3 |
| Cost per package: | ||
| Wood pieces | $0.20 | |
| Beads | $0.20 | |
| Units to be produced (from Production Budget): | ||
| Basic abacus | 35950 | |
| Deluxe abacus | 36900 | |
| LearnCo Direct Materials Purchases Budget For the Year Ending December 31, 20Y2 |
|||
| Direct Materials | |||
| Wood Pieces | Beads | Total | |
| Packages required for production: | 35950 | 71900 | |
| Basic abacus | 73800 | 110700 | |
| Deluxe abacus | |||
| Desired inventory, December 31, 20Y2 | 2,200 | 5,000 | |
| Total packages available | 111950 | 187600 | |
| Estimated inventory, January 1, 20Y2 | (3,500) | (4,500) | |
| Total packages to be purchased | 108450 | 183100 | |
| Unit price (per package) | × $ .20 | × $ .20 | |
| Total direct materials to be purchased | $ 21690 | $ 36620 | $58,310 |
Direct Labor Cost Budget
Direct labor needs from the direct labor cost budget should be coordinated between the production and personnel departments so that there will be enough labor available for production.
Before you make any changes to the budget, you review the information on the following Direct Labor Data Table and enter the units to be produced from the Production Budget. After scanning the Direct Labor Cost Budget (which follows the Direct Labor Data Table), you observe that LearnCo has omitted quite a few numbers from the budget. Fill in the missing amounts. You may need to use numbers from the Direct Labor Data Table, or from the sales budget, production budget, and direct materials purchases budget you prepared. When required, round your answers to the nearest dollar.
| Direct Labor Data Table | ||
| Gluing | Assembly | |
| Hours required per unit: | ||
| Basic abacus | 0.10 | 0.10 |
| Deluxe abacus | 0.10 | 0.20 |
| Labor hourly rate: | ||
| Gluing | $12 | |
| Assembly | $17 | |
| Units to be produced (from Production Budget): | ||
| Basic abacus | 35950 | |
| Deluxe abacus | 36900 | |
| LearnCo Direct Labor Cost Budget For the Year Ending December 31, 20Y2 |
|||
| Gluing | Assembly | Total | |
| Hours required for production: | |||
| Basic abacus | 3595 | 3595 | |
| Deluxe abacus | 3690 | 7380 | |
| Total | 7285 | 10975 | |
| Hourly rate | × $12 | × $17 | |
| Total direct labor cost | $87420 | $186575 | $273,995 |
Factory Overhead Cost Budget
| LearnCo Factory Overhead Cost Budget For the Year Ending December 31, 20Y2 |
|
| Indirect factory wages | $5,400 |
| Power and light | 11250 |
| Depreciation of plant and equipment | 1,450 |
| Total factory overhead cost | $18,100 |
Cost of Goods Sold Budget- I need help with this one!
| LearnCo Cost of Goods Sold Budget For the Year Ending December 31, 20Y2 |
|||
| Finished goods inventory, January 1, 20Y2 | $9,870 | ||
| Work in process inventory, January 1, 20Y2 | $2,010 | ||
| Direct materials: | |||
| Direct materials inventory, January 1, 20Y2 | $1,600 | ||
| Direct materials purchases | |||
| Cost of direct materials available for use | $ | ||
| Direct materials inventory, December 31, 20Y2 | (1,440) | ||
| Cost of direct materials placed in production | $ | ||
| Direct labor | |||
| Factory overhead | |||
| Total manufacturing costs | |||
| Total work in process during period | $ | ||
| Work in process inventory, December 31, 20Y2 | (1,250) | ||
| Cost of goods manufactured | |||
| Cost of finished goods available for sale | $ | ||
| Finished goods inventory, December 31, 20Y2 | (1,500) | ||
| Cost of goods sold | $ | ||
Selling/Admin. Expenses Budget- I need help with this one!
| LearnCo Selling and Administrative Expenses Budget For the Year Ending December 31, 20Y2 |
||
| Selling expenses: | ||
| Sales salaries expense | $45,000 | |
| Advertising expense | 15,000 | |
| Travel expense | 5,400 | |
| Total selling expenses | $65,400 | |
| Administrative expenses: | ||
| Officers' salaries expense | $85,000 | |
| Office salaries expense | 35,000 | |
| Office rent expense | 26,000 | |
| Office supplies expense | 6,400 | |
| Miscellaneous administrative expenses | 1,600 | |
| Total administrative expenses | 154,000 | |
| Total selling and administrative expenses | $219,400 | |
Budgeted Income Statement-I need help with this one!
| Budgeted Income Statement Data Table | |
| Interest revenue for the year | $2,000 |
| Interest expense for the year | $1,500 |
| LearnCo’s income tax rate | 40% |
| LearnCo Budgeted Income Statement For the Year Ending December 31, 20Y2 |
||
| Revenue from sales | $ | |
| Cost of goods sold | ||
| Gross profit | $ | |
| Selling and administrative expenses: | ||
| Selling expenses | $ | |
| Administrative expenses | ||
| Total selling and administrative expenses | ||
| Operating income | $ | |
| Other revenue and expense: | ||
| Interest revenue | $ | |
| Interest expense | ||
| Income before income tax | $ | |
| Income tax | ||
| Net income | $ | |
In: Accounting
World Company expects to operate at 80% of its productive
capacity of 56,250 units per month. At this planned level, the
company expects to use 27,900 standard hours of direct labor.
Overhead is allocated to products using a predetermined standard
rate of 0.620 direct labor hours per unit. At the 80% capacity
level, the total budgeted cost includes $69,750 fixed overhead cost
and $320,850 variable overhead cost. In the current month, the
company incurred $361,000 actual overhead and 24,900 actual labor
hours while producing 40,000 units.
(1) Compute the overhead volume variance.
(2) Compute the overhead controllable variance
| Fixed Overhead Applied | ||||
| Fixed OH per DL hr. | $2.50 | |||
| Standard DL hours | ||||
| Fixed Overhead applied | ||||
| Volume Variance | ||||
| Total budgeted fixed OH | ||||
| Total fixed overhead applied | ||||
|
Volume variance |
||||
| Total actual overhead | |||
| Flexible budget overhead | |||
| Variable | |||
| Fixed | |||
| Total | 0 | ||
|
Overhead controllable variance |
In: Accounting
|
Builder Products, Inc., manufactures a caulking compound that goes through three processing stages prior to completion. Information on work in the first department, Cooking, is given below for May: |
| Production data: | ||
| Pounds in
process, May 1; materials 100% complete; conversion 90% complete |
63,000 | |
| Pounds started into production during May | 280,000 | |
| Pounds completed and transferred out | ? | |
| Pounds
in process, May 31: materials 75% complete; conversion 25% complete |
23,000 | |
| Cost data: | ||
| Work in process inventory, May 1: | ||
| Materials cost | $ | 67,500 |
| Conversion cost | $ | 29,100 |
| Cost added during May: | ||
| Materials cost | $ | 350,690 |
| Conversion cost | $ | 159,835 |
|
The company uses the weighted-average method.
|
| 2. |
Compute the costs per equivalent unit for the month. (Round your answers to 2 decimal places.) |
|
|
|||||||
|
|
|||||||||||||||||||
|
|||||||||||||||||||
In: Accounting
Internal Control : Performance Measures
Essex Engineering
Topic: Performance measures,
Essex is an industrial company with three divisions. Both the Midland Division and the North Division are long established. Senior managers are concerned that these divisions have a high percentage of products that are near the end of their product life-cycle. Forecast sales increases over the next 5 years is expected to be in the region of 4-5% per annum.
The East Division was acquired in 1999 and senior managers are optimistic that this division has very good growth potential. Most of the senior managers at this division have experience of working at the other divisions.
Since 1999 the head office has ranked all divisions according to return on investment (ROI) and residual income (RI). All managers believe that the rankings are important for future promotions and career development.
A small number of other performance measures are also used by managers. These include
|
1. |
Non-productive time: Non-productive direct labour hours (percentage of total hours paid). Non-productive time includes time wasted as a result of production delays or material shortages. |
|
2. |
Customers: Customer complaints (percentage of total number of customers) |
|
3. |
Lead time: Time from order to delivery |
These performance measures were agreed by all managers in 1999. At the time it was thought that managers should focus on only a small number of measures.
2002
The managers at the divisions provided the following information for the head office.
Selected data from the budgeted Management Accounts to 31 December 2002
|
Midland Division |
Northern Division |
East Division |
|
|
$ |
$ | ||
|
Sales |
1,580,000 |
1,560,000 |
1,112,000 |
|
Cost data |
|||
|
Controllable cost of goods sold |
650,000 |
620,000 |
380,000 |
|
Non -controllable cost of goods sold |
116,000 |
115,000 |
100,000 |
|
Controllable Selling general & Administrative overheads |
370,000 |
400,000 |
370,000 |
|
Non-controllable Selling general & Administrative overheads |
250,000 |
250,000 |
162,000 |
|
Total costs |
1,386,000 |
1,385,000 |
1,012,000 |
|
Capital employed |
|||
|
Total investment |
1,400,000 |
1,440,000 |
850,000 |
|
Controllable investment |
1,200,000 |
1,111,000 |
800,000 |
|
Sales growth 2003 |
4.80% |
5.20% |
28.00% |
|
Sales growth 2004 |
4.30% |
5.10% |
37.00% |
|
1,580,000 |
1,560,000 |
1,112,000 |
Other measures
|
Midland Division |
Northern Division |
East Division |
||
|
Non-productive time: Non-productive direct labour hours (percentage of total hours paid). |
2001 |
4% |
4% |
6% |
|
2002 |
4.1% |
3.8% |
7.5% |
|
|
Customer complaints (percentage of total number of customers) |
2001 |
1% |
1.2% |
5% |
|
2002 |
1.1% |
1.1% |
6% |
|
|
Lead time: Time from order to delivery |
2001 |
10 days |
9 days |
15 days |
|
2002 |
11 days |
9 days |
18 days |
The head office has estimated that the group cost of capital is 10%
Ranking divisions in 2000
In 2000 the data on controllable and non-controllable costs and investments will be used to rank divisions.
Questions
Question 1
Based on the data provided comment on the relative financial performance of the two divisions and discuss how the ranking of the divisions changes if controllable and non-controllable costs and capital employed are analysed. (provide the calculation to prove your standpoint)
Question 2
Evaluate the choice of performance measures for the 3 divisions
Question 3
Identify and evaluate the difficulties faced by managers when measuring capital employed for a division.
Question 4
Discuss how using ROI can result in managers making poor investment decisions.
ROI has some built in biases that can lead managers to make poor decisions. First, ROI requires that all costs and benefits be stated in dollars. Because it is usually easier to quantify costs than benefits, ROI measurements can be biased in a way that gives undue weight to costs. Second, ROI focuses on benefits that can be predicted. It also tends to emphasize short run benefits over long run benefits. This biases ROI calculations to weigh short term costs and benefits more heavily than long term costs and benefits.
Question 5
Discuss the particular problems multinational companies have when evaluating the performance of divisions.
In: Accounting
1.
Which of the following is true for a firm in a perfectly competitive market?
|
Its short-run supply curve is the average variable cost curve. |
||
|
Its short-run supply curve is vertical. |
||
|
Its short-run supply curve is negatively sloped. |
||
|
Its short-run supply curve is the marginal cost curve above the average variable cost curve. |
2.
A ________ cost is one that is incurred once and cannot be recovered, such as painting a sign on a building.
|
sunk |
||
|
marginal |
||
|
fixed |
||
|
variable |
3.
What is the principal objective of a firm?
|
To maximize revenues |
||
|
To maximize production |
||
|
To minimize cost |
||
|
To maximize profits |
4.
Which of the following intersects with the marginal cost curve?
|
Average total cost curve at its lowest point |
||
|
Average total cost curve at its highest point |
||
|
Average fixed cost curve at its lowest point |
||
|
Average variable cost curve at its highest point |
In: Economics
During the year, Wright Company sells 450 remote-control airplanes for $100 each. The company has the following inventory purchase transactions for the year.
| Date | Transaction | Number of Units |
Unit Cost | Total Cost | |
| Jan. 1 | Beginning inventory | 50 | $81 | $ | 4,050 |
| May 5 | Purchase | 245 | 84 | 20,580 | |
| Nov. 3 | Purchase | 190 | 89 | 16,910 | |
| 485 | $ | 41,540 | |||
Calculate ending inventory and cost of goods sold for the year, assuming the company uses LIFO.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In: Accounting
In: Accounting
Case #2
Hoyoh Skateboards Company (HSC) is looking to acquire another skateboard manufacturer, FreeLife Limited. Freelife Ltd. recently filed for bankruptcy and management at HSC believes that they can generate a profit from this bankrupt company. FreeLife Ltd. has accounts with all of the major sporting goods chains in Canada, a segment of the market where HSC not present.
FreeLife Ltd. manufactures two product lines: traditional boards and long boards. Traditional boards for $159 each and the long boards for $315 each. In the past year, FreeLife Ltd. produced and sold 245,000 traditional boards and 36,000 long boards.
FreeLife Ltd. uses the absorption method of costing and provided the information below to HSC. The controller of FreeLife Ltd., when presenting this financial information, suggested that Hoyoh discontinue the traditional board product line after the acquisition. The company uses just-in-time (JIT) to manage inventories and, as a result, beginning and ending inventories are kept near zero (note: at the beginning and end of the prior year, inventories had zero values).
Total production costs for the past year for each product line are as follows:
|
Traditional Boards |
Long Boards |
|
|
Direct materials |
$20,335,000 |
$6,904,800 |
|
Direct labour |
$2,940,000 |
$360,000 |
|
Variable manufacturing overhead |
$1,960,000 |
$115,200 |
|
Variable selling and administrative costs |
$490,000 |
$28,800 |
|
Fixed manufacturing overhead |
$14,700,000 |
$1,800,000 |
|
Fixed selling and administrative costs |
$2,970,000 |
$330,000 |
After reviewing the FreeLife Ltd.’s operational and financial information, HSCs management is certain they can eliminate 40% of FreeLife’s fixed manufacturing overhead and 80% of the fixed selling and administrative costs.
Required:
(A) Using the absorption costing approach, calculate the total
manufacturing cost per unit for
each product line without the cost savings projected by HSC. What is a likely reason for FreeLife Ltd. controller’s suggestion to eliminate the traditional boards?
(B) Prepare a segmented income statement using variable costing (i.e., contribution margin income statement). Your income statement should reveal the overall impact of Hoyoh management’s expected savings resulting from the merger. Would you suggest that the traditional boards be discontinued under Hoyoh’s control?
(C) What is a significant disadvantage of JIT with regard to inventory management? If FreeLife Ltd. did have large beginning and ending inventories, what might management have done during the prior year to improve the appearance of the company’s income statement while looking for a buyer of the company?
In: Accounting