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 ________________________.

Project management

Expediting a Project

Consider the project shown above.

a)Draw the network diagram and find the critical path, time and cost for an all-normal level of project activity.

b)Calculate the crash cost-per-week assuming that all activities may be partially crashed.

c)Which tasks should be crashed to do the project in 21 weeks? What is the project cost?

d)Calculate the shortest delivery time for the project. What is the cost?

E7-5 Calculating Ending Inventory and Cost of Goods Sold Under FIFO, LIFO, and Average Cost LO7-2

Penn Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 1:

Required:

Compute ending inventory and cost of goods sold for the current year under FIFO, LIFO, and average cost inventory costing methods. (Round "Average cost per unit" to 2 decimal places and final answers to nearest whole dollar amount.)

X-Treme vitamin company is considering two investments,both of which cost$20000.The Firm's cost of capital is 15 percent.The cash flows are as follows.

Instructions:

I. What is the payback period for each project?    Which project would you accept based on the payback period?

II.What is the discounted payback period for each project?   which project would you accept on the discounted payback criterion?

III. Calculate The NPV of each Project?     Which project would you choose based on NPV criterion ?

IV.Based on the IRR criteria which project would you choose if they were mutually exclusive?