10. A profit maximizing firm in a competitive market produces chairs. The firm, which is a price-taker, faces a price of $35 for its product. Its average variable cost is $24 and its average fixed cost is $9 at the quantity where marginal cost equals marginal revenue. In the short run, the firm
A. should raise the price of its product.
B. should lower the price of its product.
C. will experience losses but will continue to produce chairs.
D. will shut down and incur the total loss of its fixed costs.
E. will be earning both economic and accounting profits.

11. Profit maximizing firms enter a competitive market when they observe that
(x) price exceeds average total cost for existing firms in the market.
(y) total revenue for existing firms in the market exceeds their short-run variable costs.
(z) average revenue is more than average total cost for existing firms in the market.
A. (x), (y) and (z) B. (x) and (y) only
C. (x) and (z) only D. (y) and (z) only
E. (y) only

12. If all firms have the same cost structure in a competitive market with free entry and exit, then
A. the price of the product will differ across firms.
B. all firms will operate at their efficient scale in the short run.
C. all firms will operate at their efficient scale in the long run.
D. Both A and C are correct.
E. Both B and C are correct

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Barley Hopp had the following actual results last year:

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp.
2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp.
3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp.

Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Snowden Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows:

Expected activity for each product follows:

Assume that before shifting to activity-based costing, Snowden Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follow:

Required

1. Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base.

2. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.

​(Weighted

average cost of

capital​)

Crawford Enterprises is a publicly held company located in​ Arnold, Kansas. The firm began as a small tool and die shop but grew over its​ 35-year life to become a leading supplier of metal fabrication equipment used in the farm tractor industry. At the close of​ 2015, the​ firm's balance sheet appeared as​ follows:.

.At present the​ firm's common stock is selling for a price equal to its book​ value, and the​ firm's bonds are selling at par.​ Crawford's managers estimate that the market requires a return of

19

percent on its common​ stock, the​ firm's bonds command a yield to maturity of

8

​percent, and the firm faces a tax rate of

33

percent.

a. What is​ Crawford's weighted average cost of​ capital?

b. If​ Crawford's stock price were to rise such that it sold at 1.5 times book​ value, causing the cost of equity to fall to

17

​percent, what would the​ firm's cost of capital be​ (assuming the cost of debt and tax rate do not​ change)?

a. What is​ Crawford's weighted average cost of​ capital?

nothing ​%

​(Round to two decimal​ places.)

Data Table

Cash $520,000 Accounts receivable 3,890,000 Inventories 6,600,000 Long-term debt $9,710,000 Net property, plant, and equipment 18,622,000 Common equity 19,922,000 Total assets $29,632,000 Total debt and equity $29,632,000

Inside Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows:

Expected activity for each product follows:

Assume that before shifting to activity-based costing, Snowden Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follow:

Required

1. Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base.

2. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.

Required information

Problem 02-1A Production costs computed and recorded; reports prepared LO P1, P2, P3, P4

[The following information applies to the questions displayed below.]

Marcelino Co.'s March 31 inventory of raw materials is $81,000. Raw materials purchases in April are $530,000, and factory payroll cost in April is $373,000. Overhead costs incurred in April are: indirect materials, $51,000; indirect labor, $20,000; factory rent, $35,000; factory utilities, $25,000; and factory equipment depreciation, $57,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $695,000 cash in April. Costs of the three jobs worked on in April follow.

Required:
1. Determine the total of each production cost incurred for April (direct labor, direct materials, and applied overhead), and the total cost assigned to each job (including the balances from March 31).

Required:
1. Determine the total of each production cost incurred for April (direct labor, direct materials, and applied overhead), and the total cost assigned to each job (including the balances from March 31).
  

Snowden Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows:

Expected activity for each product follows:

Assume that before shifting to activity-based costing, Snowden Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follow:

Required

1. Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base.

2. Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.

Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment depreciation and supervisory expense--to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below:

Distribution of Resource Consumption Across Activity Cost Pools:

In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.

Activity:

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

Sales and Direct Cost Data:

What is the product margin for Product W1 under activity-based costing? (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $6,636

• $2,804

• $7,364

• $3,584

Snowden Industries produces two electronic decoders, P and T. Decoder P is more sophisticated and requires more programming and testing than does Decoder T. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows:

Expected activity for each product follows:

Assume that before shifting to activity-based costing, Snowden Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follows:

Required

a) Compute the amount of overhead cost allocated to each type of decoder when using direct labor hours as the allocation base.

b) Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.

(Round intermediate calculations and final answers to 2 decimal places.)​

CONTROL LIMITS, VARIANCE INVESTIGATION

Goodsmell Company produces a well-known cologne. The standard manufacturing cost of the cologne is described by the following standard cost sheet:

Direct materials:

Liquids (4.2 decilitres @ $0.25)     $1.05

Bottles (1 @ $0.05)                          0.05

Direct labour (0.2 hr. @ $12.50)                2.50

Variable overhead (0.2 hr. @ $4.70)        0.94

Fixed overhead (0.2 hr. @ $1.00)             0.20

Standard cost per unit                                $4.74

Management has decided to investigate only those variances that exceed the lesser of 10 percent of the standard cost for each category or $20,000.

During the past quarter, 250,000 four decilitre bottles of cologne were produced.

Descriptions of actual activity for the quarter follow:

A total of 1.15 million decilitres of liquids was purchased, mixed, and processed. Evaporation was higher than expected (no inventories of liquids are maintained).

The price paid per decilitre averaged $0.27.

Exactly 250,000 bottles were used. The price paid for each bottle was $0.048.

Direct labour hours totalled 48,250, with a total cost of $622,425.

Normal production volume for Goodsmell is 250,000 bottles per quarter. The standard overhead rates are computed by using normal volume. All overhead-costs are incurred uniformly throughout the year.

Required:

Calculate the upper and lower control limits for each manufacturing cost category.

Compute the total materials variance, and break it into price and usage variances. Would these variances be investigated?

Compute the total labour variance, and break it into rate and efficiency variances. Would these variances be investigated?