A) Two firms operate as Cournot competitors. Inverse demand is P = 120 - 2Q. Firm 1 has total cost function c(q1) = 10q1 and Firm 2 has total cost function c(q2) = 20q2. Solve for the Nash equilibrium in quantities and determine the equilibrium price. B) Now assume the rms are Bertrand competitors, simultaneously choosing prices. Solve for the Nash equilibrium in prices and determine the equilibrium quantities.

A firm has a production function of Q = KL + L, where MPL = K + 1 and MPK = L. The wage rate (W) is $100 per worker and the rental (R) is $100 per unit of capital.

a. In the short run, capital (K) is fixed at 4 and the firm produces 100 units of output. What is the firm's total cost?

b. In the long run, what is the total cost of producing 100 units of output?

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in Process—Filling was as follows on January 1:

The following costs were charged to Work in Process—Filling during January:

During January, 52,400 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 4,600 units, 30% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the cost transferred from Filling to Finished Goods.

3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. If required, round your answers to two decimal places.

4. Discuss the uses of the cost of production report and the results of part (3).

The cost of production report may be used as the basis for allocating product costs between _____ and _____ . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in Process—Filling was as follows on January 1:

The following costs were charged to Work in Process—Filling during January:

During January, 34,500 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 3,000 units, 10% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

Equivalent Units and Related Costs; Cost of Production Report; Entries

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in Process—Filling was as follows on January 1:

The following costs were charged to Work in Process—Filling during January:

During January, 52,400 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 4,600 units, 90% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the cost transferred from Filling to Finished Goods.

3. Determine the increase or decrease in the cost per equivalent unit from Decemberto January for direct materials and conversion costs. If required, round your answers to two decimal places.

4. The cost of production report may be used as the basis for allocating product costs between and . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.

A bill of materials is used in manufacturing and production to show all of the parts and materials required to manufacture a specific item or for the subassembly of a finished product, such as a motorcycle. The information in the bill of materials is useful for determining product costs, coordinating orders, and managing inventory. It can also show how product costs will be affected by price changes in components or raw materials. This project provides you with an opportunity to use spreadsheet software to perform a sensitivity analysis showing the impact of various prices for component parts on the total costs of a dirt bike. The bill of materials for this project has been simplified for instructional purposes.

Dirt Bikes’s management has asked you to explore the impact of changes in some of its parts components on production costs. Review the spreadsheet file containing bill of materials information for the brake system for Dirt Bikes’s Moto 300 model, which can be found on the Laudon Web site for this chapter. The completed bill of materials contains the description of the component, the identification number of each component, the supplier (source) of the component, the unit cost of each component, the quantity of each component needed to make each finished brake system, the extended cost of each component, and the total materials cost. The extended cost is calculated by multiplying the quantity of each component needed to produce the finished brake system by the unit cost. The prices of components are constantly changing, and you will need to develop a spreadsheet application that can show management the impact of such price changes on the cost to produce each brake system and on total production costs for the Moto 300 model.

Complete the bill of materials by calculating the extended cost of each component and the total materials cost for each brake system.

Develop a sensitivity analysis (refer to pages 472-473) to show the impact on total brake system materials costs if the front brake calipers unit cost ranges from $103 to $107 and if the brake pipe unit cost ranges from $27 to $30.

The brake system represents 30 percent of the total materials cost for one Moto 300 motorcycle. Use sensitivity analysis again to show the impact of the changes in front brake caliper unit costs and brake pipe unit costs described previously on total materials costs for this motorcycle model.

1. Which is characteristic of a perfectly competitive market:

A) THere are many firms in the market

b) It is easy to enter/exit the industry

c) Every firm has a small market share in the industry

d) Information on prices are easily accessible

e) All of the above

2. The perfeclty competitive firm reaches a break even point when:

a) price=total cost

b)price=minimum average total cost

c) price=maximum average total cost

d) price=minimum average variable cost

e)price=maximum average variable cost

3) When a perfectly competitive firm is a price taker, this means that:

a) the firm faces perfectly elastic demand

b)the firm faces demand with elasticity of 1

c)firm faces perfectly inelastic demand

d)price of output=marginal revenue at all levels of output

e) firm faces perfectly elastic demand, AND price of output= marginal revenue at all levels of output.

4) IF a perfectly competitive firm sells 500 of a product at $300 per product. What is the firm's marginal cost and marginal revenue per unit?

a)None of these

b)MC=300, MR=300

c)MC=500, MR=300

d)MC=500, MR=500

e)MC=300, MR=500

5) A perfectly competitive firm produces where:

a)demand=marginal cost

b)marginal revenue=marginal cost

c)all of these

d)average revenue=marginal cost

e)price=marginal cost

1. Mastery Problem: Introduction to Managerial Accounting

   Able Baker Charlie Company

   Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to produce and sell different flavored cheesecakes to restaurants and the general public. He has just begun his study of accounting, and is a bit confused about the many types of reports he has read about and how they will help him run his business. He asks you to help him clarify what the differences between managerial accounting and financial accounting are. He’s also wondering how to set up his inventory, how to classify the costs of his business, and how to fill in some missing information.

   Managerial vs. Financial

   Select whether the following characteristics are most often associated with managerial accounting or financial accounting.

   Primarily used for internal decision making
   Generally Accepted Accounting Principles (GAAP) must be used
   Prepared statements usually pertain to the company as a whole rather than individual departments or products
   Information provided will often be subjective, such as estimated future results
   Often prepared on an as-needed basis rather than at fixed intervals

   Cost Classification

   Charles has provided some of the costs he expects to incur as follows. Decide on the classifications that could be applied to each of these costs using the table provided. The cost object in each case is the cheesecake.

   (Select "Yes" or "No" from the below dropdowns.)

   Cost	Product Cost	Period Cost	Direct Materials	Direct Labor	Factory Overhead	Selling Expense	Administrative Expense	Direct Cost	Indirect Cost	Prime Cost	Conversion Cost
   Eggs used to make cheesecakes
   Baker’s wages
   Delivery driver wages
   Depreciation of office computers
   Power to run the cheesecake ovens
   President’s salary
   Sales commissions
   Factory supervisor salary

   Financial Statements

   Charles found some sample income statements and balance sheets on the Internet, and asked which of them might be most appropriate for a manufacturing business like his. Review income statements A and B, and balance sheets C and D. Determine which income statement and balance sheet would be most appropriate for a manufacturing business like Able Baker Charlie Company.

   Income Statement A

   Sample Company A Income Statement For the Year Ended December 31, 20Y8
   Sales		$42,000
   Finished goods inventory, January 1, 20Y8	$5,250
   Cost of goods manufactured	6,400
   Cost of finished goods available for sale	$11,650
   Finished goods inventory, December 31, 20Y8	(400)
   Cost of goods sold		(11,250)
   Gross profit		$30,750
   Operating expenses:
   Selling expenses	$6,400
   Administrative expenses	5,250
   Total operating expenses		(11,650)
   Net income		$19,100

   Income Statement B

   Sample Company B Income Statement For the Year Ended December 31, 20Y8
   Sales		$42,000
   Beginning inventory	$5,250
   Net purchases	6,400
   Inventory available for sale	$11,650
   Ending inventory	(400)
   Cost of goods sold		(11,250)
   Gross profit		$30,750
   Operating expenses:
   Selling expenses	$6,400
   Administrative expenses	5,250
   Total operating expenses		(11,650)
   Net income		$19,100

   Balance Sheet C

   Sample Company C Balance Sheet December 31, 20Y8
   Assets
   Cash		$20,800
   Accounts receivable (net)		10,000
   Inventory		6,000
   Supplies		2,100
   Land		17,000
   Total assets		$55,900
   Liabilities
   Accounts payable		$17,800
   Stockholders’ Equity
   Common stock	$19,000
   Retained earnings	19,100
   Total stockholders’ equity		38,100
   Total liabilities and stockholders’ equity		$55,900

   Balance Sheet D

   Sample Company D Balance Sheet December 31, 20Y8
   Assets
   Cash		$20,800
   Accounts receivable (net)		10,000
   Inventory:
   Direct materials	$2,500
   Work in process	1,500
   Finished goods	2,000
   Total inventory		6,000
   Supplies		2,100
   Land		17,000
   Total assets		$55,900
   Liabilities
   Accounts payable		$17,800
   Stockholders’ Equity
   Common stock	$19,000
   Retained earnings	19,100
   Total stockholders’ equity		38,100
   Total liabilities and stockholders’ equity		$55,900

   Which income statement is most appropriate for a manufacturing business?

   Which balance sheet is most appropriate for a manufacturing business?

   Costs and Balances

   At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data he’s collected, but he was unable to figure out some of the amounts. Review the following data and fill in the missing amounts on the chart for Able Baker Charlie Company. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values. It may also be helpful to review the steps for determining the cost of materials used, total manufacturing cost incurred, and cost of goods manufactured.

   Data for February
   Decrease in materials inventory	$3,000
   Materials inventory on Feb. 28	50% of materials inventory on Jan. 31
   Direct materials purchased	$12,300
   Direct materials used	3 times the direct labor incurred
   Total manufacturing costs incurred in period	$29,400
   Total manufacturing costs incurred in period	70% of Cost of Goods Manufactured
   Total manufacturing costs incurred in period	$7,000 less than Cost of Goods Sold

   	Account Balances
   Account	Jan. 31	Feb. 28	Costs Incurred
   Materials Inventory	$	$	Direct Materials Used	$
   Work in Process Inventory	21,000		Direct Labor Incurred
   Finished Goods Inventory		17,000	Factory Overhead Incurred
   			Cost of Goods Sold

1. Mastery Problem: Introduction to Managerial Accounting

   Able Baker Charlie Company

   Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to produce and sell different flavored cheesecakes to restaurants and the general public. He has just begun his study of accounting, and is a bit confused about the many types of reports he has read about and how they will help him run his business. He asks you to help him clarify what the differences between managerial accounting and financial accounting are. He’s also wondering how to set up his inventory, how to classify the costs of his business, and how to fill in some missing information.

   Managerial vs. Financial

   Select whether the following characteristics are most often associated with managerial accounting or financial accounting.

   Primarily used for internal decision making
   Generally Accepted Accounting Principles (GAAP) must be used
   Prepared statements usually pertain to the company as a whole rather than individual departments or products
   Information provided will often be subjective, such as estimated future results
   Often prepared on an as-needed basis rather than at fixed intervals

   Cost Classification

   Charles has provided some of the costs he expects to incur as follows. Decide on the classifications that could be applied to each of these costs using the table provided. The cost object in each case is the cheesecake.

   (Select "Yes" or "No" from the below dropdowns.)

   Cost	Product Cost	Period Cost	Direct Materials	Direct Labor	Factory Overhead	Selling Expense	Administrative Expense	Direct Cost	Indirect Cost	Prime Cost	Conversion Cost
   Eggs used to make cheesecakes
   Baker’s wages
   Delivery driver wages
   Depreciation of office computers
   Power to run the cheesecake ovens
   President’s salary
   Sales commissions
   Factory supervisor salary

   Financial Statements

   Charles found some sample income statements and balance sheets on the Internet, and asked which of them might be most appropriate for a manufacturing business like his. Review income statements A and B, and balance sheets C and D. Determine which income statement and balance sheet would be most appropriate for a manufacturing business like Able Baker Charlie Company.

   Income Statement A

   Sample Company A Income Statement For the Year Ended December 31, 20Y8
   Sales		$42,000
   Finished goods inventory, January 1, 20Y8	$5,250
   Cost of goods manufactured	6,400
   Cost of finished goods available for sale	$11,650
   Finished goods inventory, December 31, 20Y8	(400)
   Cost of goods sold		(11,250)
   Gross profit		$30,750
   Operating expenses:
   Selling expenses	$6,400
   Administrative expenses	5,250
   Total operating expenses		(11,650)
   Net income		$19,100

   Income Statement B

   Sample Company B Income Statement For the Year Ended December 31, 20Y8
   Sales		$42,000
   Beginning inventory	$5,250
   Net purchases	6,400
   Inventory available for sale	$11,650
   Ending inventory	(400)
   Cost of goods sold		(11,250)
   Gross profit		$30,750
   Operating expenses:
   Selling expenses	$6,400
   Administrative expenses	5,250
   Total operating expenses		(11,650)
   Net income		$19,100

   Balance Sheet C

   Sample Company C Balance Sheet December 31, 20Y8
   Assets
   Cash		$20,800
   Accounts receivable (net)		10,000
   Inventory		6,000
   Supplies		2,100
   Land		17,000
   Total assets		$55,900
   Liabilities
   Accounts payable		$17,800
   Stockholders’ Equity
   Common stock	$19,000
   Retained earnings	19,100
   Total stockholders’ equity		38,100
   Total liabilities and stockholders’ equity		$55,900

   Balance Sheet D

   Sample Company D Balance Sheet December 31, 20Y8
   Assets
   Cash		$20,800
   Accounts receivable (net)		10,000
   Inventory:
   Direct materials	$2,500
   Work in process	1,500
   Finished goods	2,000
   Total inventory		6,000
   Supplies		2,100
   Land		17,000
   Total assets		$55,900
   Liabilities
   Accounts payable		$17,800
   Stockholders’ Equity
   Common stock	$19,000
   Retained earnings	19,100
   Total stockholders’ equity		38,100
   Total liabilities and stockholders’ equity		$55,900

   Which income statement is most appropriate for a manufacturing business?

   Which balance sheet is most appropriate for a manufacturing business?

   Costs and Balances

   At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data he’s collected, but he was unable to figure out some of the amounts. Review the following data and fill in the missing amounts on the chart for Able Baker Charlie Company. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values. It may also be helpful to review the steps for determining the cost of materials used, total manufacturing cost incurred, and cost of goods manufactured.

   Data for February
   Decrease in materials inventory	$2,700
   Materials inventory on Feb. 28	50% of materials inventory on Jan. 31
   Direct materials purchased	$12,300
   Direct materials used	3 times the direct labor incurred
   Total manufacturing costs incurred in period	$28,000
   Total manufacturing costs incurred in period	70% of Cost of Goods Manufactured
   Total manufacturing costs incurred in period	$7,000 less than Cost of Goods Sold

   	Account Balances
   Account	Jan. 31	Feb. 28	Costs Incurred
   Materials Inventory	$	$	Direct Materials Used	$
   Work in Process Inventory	27,000		Direct Labor Incurred
   Finished Goods Inventory		16,000	Factory Overhead Incurred
   			Cost of Goods Sold

Cost of Production Report

The debits to Work in Process—Roasting Department for Morning Brew Coffee Company for August, together with information concerning production, are as follows:

All direct materials are placed in process at the beginning of production.

a. Prepare a cost of production report, presenting the following computations:

Direct materials and conversion equivalent units of production for August.

Direct materials and conversion costs per equivalent unit for August.

Cost of goods finished during August.

Cost of work in process at August 31.

If an amount is zero, enter in "0". For the cost per equivalent unit, round your answer to two decimal places.

Feedback

a. How much more (percentage amount) needed to be done to the beginning work in process units to make the units complete to transfer to the next department? Did these units require more material cost or more conversion cost? How much, in terms of cost, had been done to these units in the prior period? In order for units to be transferred to the next department, the units have to be complete with respect to both materials and conversion. When are materials added in the process? How complete are the units in ending inventory with respect to materials? How complete are the units in ending inventory with respect to conversion? Materials and conversion cost needs to be allocated among the equivalent units. Are the number of equivalent units the same for materials and conversion?

b. Compute and evaluate the change in cost per equivalent unit for direct materials and conversion from the previous month (July). If required, round your answers to the nearest cent.