Suppose consumers spent $42 million on Christmas trees last year, when the average tree cost was $30. This year they spend $42 million, when the average tree costs $25. Assume that everything else remains constant. This data suggests that:​

Select one:

a.

​the demand for trees is inelastic.

b.

​total revenue to tree producers rose this year.

c.

​consumers bought the same number of Christmas trees this year as last year.

d.

​the price of the Christmas trees stayed the same.

e.

​the demand for trees is unit elastic.

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Which of the following is likely to increase the supply of wheat?​

Select one:

a.

​A decrease in the price of corn

b.

​An increase in the cost of fertilizer

c.

​An increase in land prices

d.

​A decrease in the price of bread

e.

​An expectation that the price of wheat will be higher in near future

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The figure below shows the cost and revenue curves for a monopolist. The deadweight loss arising under the monopoly is represented by the area:​

​

Figure 9.8

​

Select one:

a.

​eda.

b.

​dafc.

c.

​abf.

d.

​ecf.

e.

​dabc.

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Which of the following goods will have a higher price elasticity of demand?​

Select one:

a.

​A good that represents a small proportion of the consumer’s budget.

b.

A good that is a necessity.

c.

​A good with few substitutes.

d.

​A good that is broadly defined.

e.

​A good with many substitutes.

Decision Making – Equipment Replacement

Mathews manages an assembly facility of Orthom Scientific. A supplier approaches Mathews about replacing a large piece of manufacturing equipment that Orthom uses in its process with a more efficient model. While the supplier made some compelling arguments in favor of replacing the 3-year-old equipment, Mathews is hesitant. Mathews is hoping to be promoted next year to manager of the larger plant near Orthom’s headquarters, and he knows that the accrual-basis net operating income of the assembly plant he manages will be evaluated closely as part of the promotion decision. The following information is available concerning the equipment replacement decision:

The historic cost of the old machine is $600,000. It has a current book value of $240,000, two remaining years of useful life, and a market value of $144,000. Annual depreciation expense is $120,000. It is expected to have a salvage value of $0 at the end of its useful life.

The new equipment will cost $360,000. It will have a 2-year useful life and a $0 salvage value. Orthom uses straight-line depreciation on all equipment.

The new equipment will reduce electricity costs by $70,000 per year and will reduce direct manufacturing labor costs by $60,000 per year.

For simplicity, ignore income taxes and the time value of money.

Required:

Assume that Mathews’ priority is to receive the promotion and he makes the equipment replacement decision based on next year’s accrual-based net operating income. Which alternative would he choose? Show your calculations.

What are the relevant factors in the decision? Which alternative is in the best interest of the company over the next 2 years? Show your calculations.

At what cost would Mathews be willing to purchase the new equipment? Explain.

Job Order Costing

The ABC Company builds residential housing. The company started operations on June 1^st, 2018. Below are transactions that occurred in the first month of operations (June 2018)

Journal Entries:

June 1) ABC Company sold common stock for $1,500,000 in cash. The company issued 15,000 shares of $100 Par stock.

June 2) ABC Company purchased $300,000 of building materials. Paying $100,000 cash and the rest on account due in 45 days. No credit terms were given.

June 3) ABC Company purchased construction equipment for $240,000 cash. The company uses the straight line method of depreciation. The equipment has a useful life of 9 years and a residual value of $24,000.

June 4) ABC Company started construction on 3 homes (Job 100, 101, 102) by requisitioning the following materials: The materials were delivered to the job sites.

June 14) The following direct labor was used and paid for during the period ($30/hour):

Predetermined overhead rate calculated May 8, 2018

(Estimated Total Overhead Costs) / (Estimated Direct Labor Hours)

($24,000) / (3000 hours) = $7 per direct labor used

June 21) Job 100 is completed and ready for sale.

The following actual costs were incurred and paid (Except for depreciation transactions listed below) during the month of June:

June 2) Insurance on houses under construction $2,000 (covers up to any number of homes.

June 3) Insurance on anticipated completed homes $500 no matter the number.

June 8) Construction supervisor salary $6,000 (Paid Monthly)

June 8) Company president salary $8,000 (Paid Monthly)

June 8) Administrative staff salaries $3,000 (Paid Monthly)

June 12) Building Permits $3,000

June 15) Fuel for construction equipment $1,500

June 15) Purchased land for $50,000 and a building for $112,000 to use as corporate HQ

June 20) Insurance on HQ is $1,000 per month

June 23) Declared a $5,000 cash dividend to be paid on July 23, 2018.

June 24) Job 100 is sold for $250,000; Cash $150,000 & $100,000 note receivable to be received on September 19, 2018. The amount received will be $109,000 principal and interest. The note is a 360 day (One year is 360 days) 9% simple interest note. An adjusting entry must be made for interest revenue earned for the month of June.

June 30) Depreciation for June on HQ Building $2,500

June 30) Depreciation on the construction equipment was _______________

June 30) Apply (Appropriate) overhead to incomplete jobs

June 30) Account for ending balance in Overhead account

Note: All June 30 entries are Adjusting Entries

Prepare Journal Entries

1) Normal Journal Entries

2) Adjusting Journal Entries

3) Closing Journal Entries

LearningExchange Ltd offers specialised exchange programs for Australian students to live overseas and study in a local school from two to twelve months. The company’s exchange programs also include local tours. The sales and direct cost data on the two popular programs for last year are as follows:
Thailand New Zealand Number of exchange programs sold 10 15 Number of students per program 6 6 Revenue per student $14,000 $17,000 Direct cost per program: Program leaders' salary (percentage of revenue per program) 5% 7% Program assistant salary $5,000 $6,000 Local school fees (percentage of revenue per program) 25% 30% Local tour guides $2,000 $4,200 Air travel cost $4,500 $1,900 Accommodation and meals $20,000 $38,000 Insurance $2,100 $2,200

The overhead costs for the last year as follows:
Managers' salaries $100,000 Sales personnel salaries $120,000 Rent and property taxes $22,000 Utilities $8,000 Depreciation on equipment $6,000 Other operating costs $9,000

To calculate the profitability of each exchange program, overheads are allocated to each program in proportion to the actual sales revenue.

Required: 1. Calculate the contribution of each tour package towards the overall profit of the company. [10 marks]
Click or tap here to enter text.

2. Should the company keep on offering both tour packages? Explain and support your answer with necessary calculations. [1 mark]
Click or tap here to enter text.

3. Do you consider the company’s overhead allocation method to be appropriate or would you suggest an alternative? Explain. [1 mark]
Click or tap here to enter text.

4. What should the company do to improve the profitability of each exchange program? Provide some suitable examples

4. A project with fixed costs of 320,000 and operating cash flow of 160,000 was expected to sell 11,000 units.  The final results for the year were that 9,800 units were sold instead.

What is the degree of operating leverage? __________________

What is the percentage change in quantity? _________________

What is the percentage change in operating cash flow? ________________

What would the operating cash flow be under the actual level of production? __________________

7.  Colby is in the furniture moving business.  He has some equipment that he purchased new two years ago for $6,000.  At the time, Colby’s accountant told him to depreciate it straight line over three years.  Now there is better equipment out there and he wants to get rid of his old machine, but he can get only $700 for it.  Colby is in the 35% tax bracket.

What is the book value of the old machine? __________

What is the market value of the old machine? _________

Will Colby have a gain or loss? _____________

How much will his gain or loss be? ____________

What will be the tax effect (amount)? ____________

What is the after tax salvage value of the old machine? _______________

8.   A certain asset was purchased at a cost of $1,140,000.  This company is in the 35% tax bracket.  Complete the lines below:

Year           MACRS %      Amount of Dep        Amount of Dep                 Difference                           Tax Effect

under MACRS         under straight line

1           .3333                      ______________           ________________                     

2           .4444                      ______________           ________________          ______________           ______________

3           .1482                      ______________           ________________                     

4           .0741                      ______________

9.  Frugal Company is considering two machines for purchase.  The machine is integral to their business, so when it wears out, it will be replaced with a similar machine.  The company uses a discount rate of 9% for their investments.  Compute the equivalent annual cost of each machine.

                                            Machine A                                 Machine B

Initial cost                                 219,000                                 188,000

Useful Life                                 14 years                                 13 years

Annual maintenance           1,500 per year                      2,000 per year

EAC of A _____________   EAC of B ______________  Which should Frugal choose? ______________

                                                                                                                                            A or B

Panama Canal, which took 10 years to build and opened in 1914, handles 5% of world trade.
The government of Panama recently initiated a project to expand the canal in order to
increase its share of global shipment, boost job creation, stimulate economic growth and
boost foreign exchange and tax revenue. Among other things, the expansion project involves
the building of a third set of locks that can accommodate mega cargo ships carrying up to
12,000 containers; at the moment the biggest ships that can navigate the canal carry 5,000
containers. The work was awarded to GUPC (Grupo Unidos por el Canal), a consortium of
international construction firms led by Sacyr of Spain. Others are Impregilo of Italy, Belgian
firm Jan De Nul and Constructora Urbana, a Panamanian firm. Work began in 2009 and was
expected to be completed in September 2014 at a total cost of $3.2 billion, according to the
contract.
As of January 2014, the work was already nine months behind schedule (with project
completion now expected in June 2015) and a cost overrun of $1.6 billion had been incurred
as of January 2013. According to GUPC, the cost overrun and schedule slippage were due to
“many and varied unforeseen costs which came up during these gigantic works... They are
technical matters, questions over cement ingredients, geotechnical matters, geological
questions, taxes matters, financial matters, labour issues and weather conditions". However,
Panama Canal Authority (APC), the Panamanian state-owned company responsible for
managing the canal and overseeing the project, attributed the problem partly to a delay of
four months shortly after the project began as a result of GUPC’s attempt to use low-quality
cement, which was rejected by the canal authority.
Since January 2013, there had been an escalating dispute over who should bear the additional
cost of $1.6 billion. The position of APC was that GUPC should respect the existing contract
by absorbing the additional cost, arguing that the cost overrun was due to events that were
"normal" in such a construction project. But GUPC said the cost overrun was due to
"unforeseeable" circumstances and delays caused by APC. On December 30, 2013, the
dispute had become so bad that GUPC threatened to halt work unless the Panamanian
government paid the money within 21 days. In response, the president of Panama, President
Ricardo Martinelli, threatened to go to Europe to demand that the governments of the
member firms of GUPC “take moral responsibility for what happened, because it is not
possible that a company puts such a huge extra charge on expansion work."
News of the suspension threat sent Sacyr’s shares plunging by more than 18% on the Madrid
stock exchange. On January 4th, 2014, Spain's minister for public works, Ana Pastor, flew to
Panama for an emergency meeting with President Martinelli and also met all the parties
involved to try to resolve the impasse. According to a spokesperson for Spain's foreign
ministry, "Panama is a country that is close and friendly towards Spain, and we share the
desire and interest to find a solution as soon as possible". Spain's ambassador to Panama,
Jesus Silva, added that all stood to lose out if the contract fell through.
Question
What was the justification (business case) for the project from the perspective of the
government of Panama? And according to GUPC, what was the estimate at completion? Justify your answer.

Panama Canal, which took 10 years to build and opened in 1914, handles 5% of world trade.
The government of Panama recently initiated a project to expand the canal in order to
increase its share of global shipment, boost job creation, stimulate economic growth and
boost foreign exchange and tax revenue. Among other things, the expansion project involves
the building of a third set of locks that can accommodate mega cargo ships carrying up to
12,000 containers; at the moment the biggest ships that can navigate the canal carry 5,000
containers. The work was awarded to GUPC (Grupo Unidos por el Canal), a consortium of
international construction firms led by Sacyr of Spain. Others are Impregilo of Italy, Belgian
firm Jan De Nul and Constructora Urbana, a Panamanian firm. Work began in 2009 and was
expected to be completed in September 2014 at a total cost of $3.2 billion, according to the
contract.
As of January 2014, the work was already nine months behind schedule (with project
completion now expected in June 2015) and a cost overrun of $1.6 billion had been incurred
as of January 2013. According to GUPC, the cost overrun and schedule slippage were due to
“many and varied unforeseen costs which came up during these gigantic works... They are
technical matters, questions over cement ingredients, geotechnical matters, geological
questions, taxes matters, financial matters, labour issues and weather conditions". However,
Panama Canal Authority (APC), the Panamanian state-owned company responsible for
managing the canal and overseeing the project, attributed the problem partly to a delay of
four months shortly after the project began as a result of GUPC’s attempt to use low-quality
cement, which was rejected by the canal authority.
Since January 2013, there had been an escalating dispute over who should bear the additional
cost of $1.6 billion. The position of APC was that GUPC should respect the existing contract
by absorbing the additional cost, arguing that the cost overrun was due to events that were
"normal" in such a construction project. But GUPC said the cost overrun was due to
"unforeseeable" circumstances and delays caused by APC. On December 30, 2013, the
dispute had become so bad that GUPC threatened to halt work unless the Panamanian
government paid the money within 21 days. In response, the president of Panama, President
Ricardo Martinelli, threatened to go to Europe to demand that the governments of the
member firms of GUPC “take moral responsibility for what happened, because it is not
possible that a company puts such a huge extra charge on expansion work."
News of the suspension threat sent Sacyr’s shares plunging by more than 18% on the Madrid
stock exchange. On January 4th, 2014, Spain's minister for public works, Ana Pastor, flew to
Panama for an emergency meeting with President Martinelli and also met all the parties
involved to try to resolve the impasse. According to a spokesperson for Spain's foreign
ministry, "Panama is a country that is close and friendly towards Spain, and we share the
desire and interest to find a solution as soon as possible". Spain's ambassador to Panama,
Jesus Silva, added that all stood to lose out if the contract fell through.

Question
Explain the main issue in dispute, the disputants involved, and why this dispute was or
may be related to the following aspects of the project:
i. Project Scope
ii. Project Quality
iii. Project Schedule
iv. Project Risks
v. Project Procurement

3-bPrepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

Record the entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.\

4-

You are considering buying a three month put option on Wing and a Prayer Construction stock. The company's stock currently trades for $10 per share and its price will either rise to $15 or fall to $7 in three months. The risk-free rate for three months is 2%. What is the appropriate price for a put option with a strike price of $9?

Noise levels at 5 construction sites were measured in decibels yielding the following data:

149,181,169,139,155

Construct the 90% confidence interval for the mean noise level at such locations. Assume the population is approximately normal.

Copy Data

Step 1 of 4 :  

Calculate the sample mean for the given sample data. Round your answer to one decimal place