How can the long-run average cost (LRAC) curve be derived from the short-run average total cost (SRATC) curve?

Define cost-push inflation. Using the AS/AD model, explain how cost-push inflation affects the level of aggregate output and the price level in the economy. Suppose that the government uses expansionary fiscal policy to counter the effects of the cost-push inflation. Indicate using the AS-AD model the impact of this policy on the price level and level of aggregate output.

Jake’s Roof Repair has provided the following data concerning its costs: Fixed Cost per Month Cost per Repair-Hour Wages and salaries $ 21,400 $ 15.00 Parts and supplies $ 7.80 Equipment depreciation $ 2,780 $ 0.55 Truck operating expenses $ 5,720 $ 1.70 Rent $ 4,650 Administrative expenses $ 3,860 $ 0.40 For example, wages and salaries should be $21,400 plus $15.00 per repair-hour. The company expected to work 3,000 repair-hours in May, but actually worked 2,900 repair-hours. The company expects its sales to be $48.00 per repair-hour.

Required: Compute the company’s activity variances for May. (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.)

A manufacturer uses process costing.  It has one direct material cost pool and one conversion cost pool.  Information for the month is as follows:

                                                                    Beginning of Month       End of Month

Work in process:                                           20,000 units                  8,000 units

Conversion (% of completion in WIP):             35%                                65%

Costs of Materials in WIP:                            $  81,000                             ?

Costs of Conversion in WIP:                         $115,000                             ?

During the month:

Units started during the month:           69,000 units

Costs incurred for Materials:           $300,000   

Costs incurred for Conversion:        $270,000

Total Spoiled Units detected:                  4,398 units

Other Income Statement Information:

Sales:                                                  $920,000

Admin expenses                                $200,000

92% of direct materials is added at the beginning of the process, and the remaining 8% of direct materials (for packaging) is added immediately after inspection.  

Inspection occurs when units are 75% converted, and inspection determines if the units are “acceptable” or “spoiled”.  Normal Spoilage is based on 6% of units started.

There were no finished goods or raw material inventories at any point of the process.

Required:

Part A: Prepare an Income Statement for the month, assuming that inventory is based on modified FIFO,

Part B:  Prepare an Income Statement for the month, assuming that inventory is based on Weighted Average.

Jake’s Roof Repair has provided the following data concerning its costs:

For example, wages and salaries should be $20,700 plus $16.00 per repair-hour. The company expected to work 2,700 repair-hours in May, but actually worked 2,600 repair-hours. The company expects its sales to be $45.00 per repair-hour.

Required:

Compute the company’s activity variances for May. (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 2–24 Schedule of Cost of Goods Manufactured; Income Statement; Cost Behaviour [LO1, LO2, LO3, LO4, LO5]
Carlton Manufacturing Company provided the following details about operations in February

Purchases of raw materials. . . . . . . ........................................... 130 000

Maintenance, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 37,000

Direct labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 32,500

Depreciation, factory equipment . ........................................... 55,000

Indirect materials, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3,000

Selling and administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,500

Utilities, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26,000

Sales commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17,500

Insurance, factory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000

Depreciation, sales equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Advertising expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107

Rent, factory building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .???

The company also provided details regarding the balances in the inventory accounts at the beginning and end of the month as follows:

Raw materials used in production cost $135,000, total overhead costs for the year were $170,000, the goods available for sale totalled $360,000, and the cost of goods sold totalled $317,500.

Required:

Prepare a schedule of cost of goods manufactured and the cost of goods sold section of the company’s income statement for the year.

Assume that the dollar amounts given above are for the equivalent of 15,000 units pro- duced during the year. Compute the average cost per unit for direct materials used, and compute the average cost per unit for rent on the factory building.

Assume that in the following year the company expects to produce 20,000 units. What av- erage cost per unit and total cost would you expect to be incurred for direct materials, and for rent on the factory building? Direct materials are a variable cost and rent is a fixed cost.

As the manager in charge of production costs, explain to the president the reason for any difference in the average costs per unit between (2) and (3) above.

20) For the given cost function C(x)=22500+800x+x2,

First, find the average cost function. Use it to find:

a) The production level that will minimize the average cost?

21) Given the function f(t)=(t−3)(t+7)(t−6).

its f-intercept is  

its t-intercepts are

b) The minimal average cost?

1. Explain briefly what the following mean:
   1. Cost benefit analysis
   2. Economic impact analysis
   3. Cost effectiveness analysis
   4. Hedonic pricing
   5. Shadow pricing

Given the following data       Output        Total cost

output total cost

0 6

1 14

2 20

3 24

4 32

5 45

6 60

1. What is the value of total fixed cost? _______
2. What is the value of total variable cost when output= 4? _______
3. What is the value of average total cost when output equals 6?______
4. What is the marginal cost of the fifth unit?_______
5. AT what level of output is marginal cost at its minimum value? _____