Activity cost pool Machine setup Materials handling Machine depreciation Activity cost driver Number of setups Number of parts Machine hours (mh) Cost assigned to pool 260000 580000 600000 Standard product 60 setups 14000 parts 2 mh per product Custom product 40 setups 12000 parts 4mh per product the company produced 14 000 basic products and 10000 custom product. compute the activity overhead rate for each cost pool using ABC.

Morton Company has two divisions. Sales, direct materials cost, direct labor cost, and manufacturing overhead data for Morton’s two divisions are available below. Note: All of Morton Company’s products are sold in competitive markets.

Missile Salt

Products Products

Sales $1,500,000 $1,000,000

Direct labor (800,000) (300,000)

Direct materials (100,000) (40,000)

Manufacturing overhead* (400,000) (150,000)

Gross profit $200,000 $510,000

*Manufacturing overhead is allocated to production based on the amount of direct labor cost. Morton has determined that its total manufacturing overhead cost of $550,000 is a mixture of batch-level costs and product line costs.

Morton has assembled the following information concerning the manufacturing overhead costs, the annual number of production batches, and the number of product lines in each division.

Total Manufacturing

Overhead Missile Salt

Costs Products Products

Batch-level overhead $250,000 10 batches 90 batches

Product line overhead 300,000 1 line 9 lines $550,000

Which ONE of the following statements is MOST CORRECT?

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have decreased by $345,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have decreased by $25,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have increased by $345,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Salt Division would have decreased by $285,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Salt Division would have increased by $285,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have increased by $25,000.

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

Fixed Cost per Month Cost per Repair-Hour Wages and salaries $ 21,200 $ 16.00 Parts and supplies $ 7.60 Equipment depreciation $ 2,710 $ 0.50 Truck operating expenses $ 5,760 $ 1.70 Rent $ 4,690 Administrative expenses $ 3,850 $ 0.50 For example, wages and salaries should be $21,200 plus $16.00 per repair-hour. The company expected to work 2,600 repair-hours in May, but actually worked 2,500 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.)

Compare and contrast the three methods of cost-finding discussed in Chapter 12

-Cost-to-charge,

-Step-Down, and

-Activity-Based Costing.

How do they work?

What type of organizations might use each of the methods and why?

Current Capital Structure and WACC

Target Capital Structure and WACC

What are some differences between these two structures? What issues could the target capital structure create?

• How can the long-run average cost (LRAC) curve be derived from the short-run average total cost (SRATC) curve?
• Describe economies of scale and diseconomies of scale.
• What are the determinants of economies of scale and diseconomies of scale, respectively?
• Using a real-world company (other than Sysco), explain the causes of economies of scale for your company.
• How would economies of scale help your company compete in its industry?

1. Firm I has variable cost VCi = yi^2/10 and fixed cost FCi = 2000.

(1) Find total cost Ci(yi), average cost ACi, marginal cost Mci and the firm supply function Si(p)

(2) There are n=50 firms identical to firm I, facing a market demand of D(p) = 1000-250p. Find the market supply function S(p), the market equilibrium price p*, the market equilibrium quantity Y*.

(3) Given price p* you found in part b, what is the profit maximising yi* that firm i produces? How much profit does firm i make?

2. All steak houses have the same cost curves. Long-run average cost curve: AC = -250 + 4q + 4,900/q Long-run total cost curve: TC= 4,900 – 250q + 4q2 Long-run marginal cost curve: MC = -250 + 8q Market demand for steaks: QD = 24,375 – 200P q = number of steaks sold by firm per hour P = price per steak

2a. Calculate the long-run equilibrium price and how many steaks each individual owner will sell per hour.

2b. Calculate how many firms there are?

2c. If fixed costs increase by 640, calculate how many steaks each firm will now produce per hour.

2d. Explain if the industry has increasing, decreasing or constant costs. Calculate the new LR equilibrium price.

Part III: Scarcity, Cost-Benefit, and Opportunity Cost

1) List the THREE questions society must ask itself because of scarcity. (1.5 pts)

2) What are the potential costs and benefits of deciding to go to a 4-year university after graduation? (2 pts)

Costs:

Benefits:

3) Give a situation where you’ve had to use a cost-benefit analysis to make a decision. What were the costs and benefits? (3 pts)

Situation:

Costs:

Benefits:

4) Tyler received $100 for his birthday. He chooses to buy five new video games instead of saving it for gas for a trip to Chicago he wants to take. What is the opportunity cost in this scenario? (2 pts)

5) Using the graph below, answer the following questions. (1.5 pts)

If the entrepreneur decides to make 18 goods, he can only provide ________ services.

If the entrepreneur decides to now make 22 goods, he can only provide _______ services, which makes his opportunity cost ________________________.