Problem 4-14 Compute and Use Activity Rates to Determine the Costs of Serving Customers [LO4-2, LO4-3, LO4-4]
Gino’s Restaurant is a popular restaurant in Boston, Massachusetts. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified the following major activities:
| Activity Cost Pool | Activity Measure |
| Serving a party of diners | Number of parties served |
| Serving a diner | Number of diners served |
| Serving drinks | Number of drinks ordered |
A group of diners who ask to sit at the same table is counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served.
Data concerning these activities are shown below:
| Serving a Party | Serving a Diner | Serving Drinks | Total | ||||
| Total cost | $32,800 | $211,200 | $69,600 | $313,600 | |||
| Total activity | 8,000 | parties | 32,000 | diners | 58,000 | drinks | |
Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month was $313,600 and that 32,000 diners had been served. Therefore, the average cost per diner was $9.80 ($313,600 ÷ 32,000 diners = $9.80 per diner).
Required:
1. Compute the activity rates for each of the three activities.
2. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners?
a. A party of four diners who order three drinks in total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.
3. Convert the total costs you computed in part (2) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties?
a. A party of four diners who order three drinks in total.
b. A party of two diners who do not order any drinks.
c. A lone diner who orders two drinks.
In: Accounting
1. Explicit cost equals
A) Opportunity cost minus sunk cost.
B) Implicit cost minus sunk cost.
C) Economic cost minus opportunity cost.
D) Opportunity cost minus implicit cost.
2. If supply decreases, and at the same time, demand increases, which of the following would also occur?
A) an increase in the equilibrium price
B) a decrease in the equilibrium price of substitutes
C) a decrease in the equilibrium quantity
D) all of the above
3. Which of the following statements about demand elasticity is correct?
A) If demand is price-inelastic, an increase in price will reduce total revenue.
B) If demand is price-elastic, an increase in price will increase total revenue.
C) If demand is price-inelastic, an increase in price will increase total revenue.
D) If demand is price-elastic, an increase in price will leave total revenue unchanged.
4. Which of the following correctly characterizes a profit-maximizing monopolist (assuming no price discrimination)?
A) P>MR=MC
B) P>MR>MC
C) P=MR=MC
D) P=MR>MC
5. Elasticity of demand tends to be greater
A) the longer the time period involved.
B) the more complements the good has.
C) the lower the income elasticity of demand.
D) the more widely defined the commodity class.
6. If the energy costs involved in making a product greatly decrease, then we can expect (other things equal)
A) both the equilibrium price and the equilibrium quantity to increase
B) both the equilibrium price and the equilibrium quantity to decrease
C) the equilibrium price to increase and the equilibrium quantity to decrease
D) the equilibrium price to decrease and the equilibrium quantity to increase
7. If a firm doubles its use of all inputs, and output increases by 50 percent, the production function exhibits
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) increasing marginal returns to a fixed factor of production.
8. Which of the following statements about the relationship between marginal cost and average (total) cost is correct?
A) When MC is falling, AC is falling.
B) AC equals MC at MC's lowest point.
C) When MC exceeds AC, AC must be rising.
D) When AC exceeds MC, MC must be rising.
9. Once diminishing returns have set in, each additional unit of a variable input
A) decreases total output.
B) adds less to total output.
C) adds more to total output.
D) does not affect total output.
10. The marginal cost curve intersects the average variable cost curve at 1000 units per day. The rate of output at which average total costs are minimized is
A) 1000 units.
B) more than 1000 units.
C) less than 1000 units.
D) none of the above. More information is needed
11. Increasing returns to scale imply that
A) average costs are constant.
B) average costs are falling.
C) average costs are increasing.
D) average costs are negative.
12. Which of the following statements is incorrect?
A) Average variable cost falls, reaches a minimum and begins to rise.
B) Average total cost falls, reaches a minimum and begins to rise.
C) Average fixed cost falls, reaches a minimum and begins to rise.
D) marginal cost falls, reaches a minimum and begins to rise.
13. In the case of second-degree price discrimination
A) consumers do not get as much consumer surplus as they do under perfect price discrimination
B) the seller produces more than would be the case under perfect competition
C) all of the prices charged are equal to marginal cost
D) none of the above
14. Free entry does not exist when
A) there are no differential impediments across firms in the mobility of resources into and out of an industry.
B) a firm experiences economies of scale.
C) an incumbent firm has an exclusive government patent.
D) a firm experiences diseconomies of scale.
15. The demand curve of a perfectly competitive firm is determined by
A) the level of the quality of the good the firm produces.
B) the intersection of the market demand and supply curves.
C) the reputation of the firm.
D) the slope of its marginal cost curve
16. The perfectly competitive firm's demand curve is horizontal because
A) it is part of the industry's demand curve which is horizontal in competitive industries.
B) its demand is so elastic that the firm behaves as a price-taker.
C) all the firms in the industry have agreed upon the price to charge customers.
D) none of the above.
17. A competitive firm maximizes profit at the output level where
A) price minus average total cost is the largest.
B) average total cost equals marginal cost.
C) marginal revenue exceeds marginal cost by the greatest amount.
D) none of the above
18. In the short-run, if a competitive firm finds itself operating at a loss, it will
A) shut down.
B) continue to operate as long as price is greater than average variable cost.
C) raise the price of its product.
D) reduce the size of its plant to lower fixed costs.
19. In a constant-cost competitive industry, if price rises above its long-run equilibrium level, which of the following willnot occur as the industry adjusts to a new long-run equilibrium?
A) New firms will enter the industry.
B) Economic profit will be eliminated.
C) Input prices will rise.
D) Existing firms will increase production, at least for a while
20. The market demand curve and the demand curve faced by a monopoly are
A) different in that the market demand curve is less elastic.
B) different in that the market demand curve is more elastic.
C) different, but we can't tell which is more elastic without more information.
D) identical.
In: Economics
The following table gives capital and labor requirements for 10 different levels of production.
|
q |
K |
L |
Total Cost |
Marginal Cost |
Average Variable Cost |
|
|
0 |
0 |
0 |
Answers: |
|||
|
1 |
6 |
1 |
30 |
30 |
||
|
2 |
10 |
3 |
b. |
|||
|
3 |
13 |
5 |
c. |
|||
|
4 |
16 |
7 |
d. |
|||
|
5 |
20 |
9 |
||||
|
6 |
25 |
11 |
||||
|
7 |
31 |
13 |
||||
|
8 |
38 |
15 |
||||
|
9 |
46 |
17 |
||||
|
10 |
55 |
19 |
Assuming that the price of labor (PL) is $6 per unit and the price of capital (PK) is $4 per unit, compute and graph total cost, marginal cost, and average variable cost for the firm. Do the graphs have the shapes that you might expect? Explain. Using the numbers here, explain the relationship between marginal cost and average variable cost. Using the numbers here, explain the meaning of “marginal cost” in terms of additional inputs needed to produce a marginal unit of output. |
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In: Economics
Primare Corporation has provided the following data concerning last month’s manufacturing operations.
| Purchases of raw materials | $ | 30,000 |
| Indirect materials included in manufacturing overhead | $ | 4,750 |
| Direct labor | $ | 58,200 |
| Manufacturing overhead applied to work in process | $ | 88,600 |
| Underapplied overhead | $ | 4,180 |
| Inventories | Beginning | Ending | ||
| Raw materials | $ | 10,900 | $ | 19,600 |
| Work in process | $ | 55,400 | $ | 69,400 |
| Finished goods | $ | 34,200 | $ | 43,900 |
Required:
1. Prepare a schedule of cost of goods manufactured for the month.
Prepare a schedule of cost of goods manufactured for the month.
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2. Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.
Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.
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In: Accounting
Primare Corporation has provided the following data concerning last month’s manufacturing operations.
| Purchases of raw materials | $ | 32,000 |
| Indirect materials included in manufacturing overhead | $ | 4,530 |
| Direct labor | $ | 59,300 |
| Manufacturing overhead applied to work in process | $ | 87,600 |
| Underapplied overhead | $ | 4,060 |
| Inventories | Beginning | Ending | ||
| Raw materials | $ | 11,400 | $ | 19,300 |
| Work in process | $ | 54,400 | $ | 66,300 |
| Finished goods | $ | 33,800 | $ | 43,300 |
Required:
1. Prepare a schedule of cost of goods manufactured for the month.
2. Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.
Prepare a schedule of cost of goods manufactured for the month.
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Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.
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In: Accounting
Easy Breeze company produced 100,000 units, sold 90,000 units at a selling price per unit of $450, and incurred the following manufacturing costs:
Direct Materials = $40 per unit
Direct Labor = $18 per unit
Factory overhead costs:
Variable Factory Overhead = $23 per unit
Fixed Factory overhead = $250,000
Semi-variable Factory overhead cost is $70,000. The company utilized 14,000 machine hours during this period. The following additional information is provided semi-variable factory overhead into variable and fixed factory overhead costs, using high-low method.
Cost machine hours
Jan $52,000 10,000
Feb $54,000 11,000
Mar $77,000 20,000
April $67,000 12,500
Selling and Administrative expenses information:
Variable Selling and Administrative Expenses = $22 per unit
Fixed Selling and Administrative Expenses= $122,000.
Questions:
Total Factory variable overhead cost per unit?
Total Factory Fixed Overhead cost per unit?
Total manufacturing cost per unit?
Variable costing income statement?
In: Accounting
1. Suppose the demand for good X shifts left(inward). Which of the following statements could TRUE?
I. The price of good X increased.
II. The price of a substitute good decreased.
III. The price of a complement good increased.
(Chapter 5)
I, II and III
I
II
II and III
2. If marginal product is below average product:
The total product must fall
Total revenue will fall
The average product will fall
Average variable cost will fall
3. The production function given by Q = 10(0.7K2.2 + 0.3L2.1)0.45 has _____ returns to scale.
increasing
decreasing
constant
instant
4. A firm is producing 50 units of output at a total cost of $2,000, with a per-unit variable cost of $20. What is the firm's average fixed cost?
20
12
28
4
5. Average variable cost:
does not change with the level of the firm's output.
is associated with the firm's variable inputs.
captures the wear and tear of using capital in production.
always decreases as the firm increase output
In: Economics
K-Too Everwear Corporation can manufacture mountain climbing shoes for $43.03 per pair in variable raw material costs and $25.45 per pair in variable labor expense. The shoes sell for $140 per pair. Last year, production was 110,000 pairs. Fixed costs were $1,150,000. What were total production costs? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) Total production cost $ What is the marginal cost per pair? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Marginal cost per pair $ What is the average cost per pair? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Average cost per pair $ If the company is considering a one-time order for an extra 9,000 pairs, what is the minimum acceptable total revenue from the order? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.)
In: Finance
Sitka Industries uses a cost system that carries direct materials inventory at a standard cost. The controller has established these standards for one ladder (unit):
Standard Quantity x Standard Price = Standard Cost Direct materials 3 pounds $4.50 per pound $13.50 Direct labor 2.00 hours $12.00 per hour $24.00 Total cost $37.50 Sitka Industries made 3,000 ladders in July and used 8,800 pounds of material to make these units. Smith Industries bought 15,500 pounds of material in the current period. There was a $250 unfavorable direct materials price variance. A. How much in total did Sitka pay for the 15,500 pounds? B. What is the direct materials quantity variance? C. What is the total direct material cost variance? D. What if 9,500 pounds were used to make these ladders, what would be the direct materials quantity variance? E. If there was a $340 favorable direct materials price variance, how much did Sitka pay for the 15,500 pounds of material?
In: Accounting
Cost of Goods Manufactured
Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 50,000 units will be produced, with the following total costs:
| Direct materials | ? |
| Direct labor | $61,000 |
| Variable overhead | 30,000 |
| Fixed overhead | 205,000 |
Next year, Pietro expects to purchase $115,000 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:
| Direct materials Inventory |
Work-in-Process Inventory |
|
| Beginning | $6,000 | $10,500 |
| Ending | $5,900 | $12,500 |
Required:
1. Prepare a statement of cost of goods manufactured.
| Pietro Frozen Foods, Inc. | ||
| Statement of Cost of Goods Manufactured | ||
| For the Coming Year | ||
| Direct materials | ||
| Beginning inventory | $ | |
| Materials available | $ | |
| Direct materials used in production | $ | |
| Total manufacturing costs added | $ | |
| Cost of goods manufactured | $ | |
2. What if the ending inventory of direct materials increased by $2,600? Indicate the affect that this would have on the items listed below:
| Direction of change | Amount | |||
| Direct materials used | by | $ | ||
| Total manufacturing costs | by | $ | ||
| Cost of goods manufactured | by | $ |
In: Accounting