True/False Questions.

3. Short-run costs are generally lower than long-run costs.

4. If a firm has zero fixed costs, then the firm’s total cost is equal to its variable costs.

5. Since the marginal cost curve “pulls” the average variable cost curve, the marginal cost curve will lie above the average variable cost curve only when average variable costs are decreasing.

Presented below is information related to Aaron Rodgers Corporation for the current year. Beginning inventory was $600,000. Purchases was 1,500,000. Sales revenue was 2,500,000. Required: Fill in the blanks to compute the ending inventory, assuming that gross profit is 45% of sales.

IMPORTANT: I know the answer is "C". However, I don't know why. Could you please explain why? Thank you

A linear total cost curve that passes through the origin implies that

a.         average cost is constant and marginal cost is variable.

b.         average cost is variable and marginal cost is constant.

            c.         average and marginal costs are constant and equal.

            d.         you need more information to answer question.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $100, and average fixed costs of $20. The firm's total variable cost at this output level is A) $120. B) $80. C) $8,000. D) $12,000.

Mathews Company manufactures only one product. For the year ended December 31, the contribution margin increased by $16,224 from the planned level of $545,376. The president of Mathews Company has expressed some concern about this increase and has requested a follow-up report.

The following data have been gathered from the accounting records for the year ended December 31:

Required:

1. Prepare a contribution margin analysis report for the year ended December 31.

2. At a meeting of the board of directors on January 30, the president, after reviewing the contribution margin analysis report, made the following comment:

It looks as if the price increase of $14 was a favorable tradeoff for decreased sales volume, yet variable cost of goods sold was less than planned and variable selling and administrative expenses were out of control and needed to be investigated. He went on to say that since the favorable tradeoff between higher price and lower sales volume was so successful, the company should consider increasing the sales price to $130.

Do you agree or disagree with the president's proposal and which reason would best explain your decision about the data?

Disagree with the president because the majority of the decrease in the variable cost of goods sold was due to the variable cost quantity factor and the increased variable selling and administrative expenses are probably a result of additional selling efforts needed to be competitive at higher prices.

Agree with the president because the unit cost factor for the variable selling and administrative cost is greater than the unit cost factor for the variable cost of goods sold, making an investigation necessary.

Agree with the president because the total effect of change in sales is greater than the total effect of changes in variable cost of goods sold, making an additional price raise attractive for more profits.

Disagree with the president because the contribution margin as a percentage of sales is greater for the planned sales level than the actual sales level, making his concern about variable selling and administrative expenses unwarranted.

Agree with the president because the majority of the decrease in the variable cost of goods sold was due to the sales price factor, as well as an increase in the variable selling and administrative expenses as a percentage of sales, making an additional price raise attractive for more profits.

The correct answer is:

Exam case study Foreign direct investment in China: A case study from the Yangtze Delta Basin The metropolis of Shanghai dominates the rich, fertile and low-lying plain south of the Yangtze River in China. Within a 150 kilometre radius are also located the major urban centres of Suzhou, Nanjing, Hangzhou and Ningbo. Suzhou is approximately one hour by road from Shanghai and is one of the oldest cities in the Yangtze Delta Basin, with an identifiable history stretching back 2500 years. There is a traditional Chinese saying: ‘There’s paradise in heaven, but Suzhou and Hangzhou on earth’—a reference to Suzhou’s beautiful gardens and canals. In the 1980s Deng Xiaoping’s ‘open door policy’ was adopted in China and provided preferential treatment for coastal regions to develop special economic zones. These themed reforms nurtured economic change and were in line with Deng’s wishes, enabling ‘some people to get rich’ (Isaak 2000). To persuade foreign direct investment to come to Suzhou, policies for the effective leadership of development were enacted. For example, in 1998 L Government, the Jurong Township Corporation (JTC), was appointed to manage the establishment process for what was initially called the Singapore Industrial Park (SIP). Located between Shanghai and Suzhou, SIP became a flagship project for the new generation of ETDZs. The initial investment and control was 65 per cent Singaporean and 35 per cent Chinese, and a specially set up authority managed the ETDZ. It had its own customs house, and was notable for its superior infrastructure and strict environmental controls. However, the success of the Singaporean model became awkward for the Chinese and the local Suzhou municipality. They witnessed the success of the SIP, but had limited share in the wealth being generated. This prompted a flurry of activity for the emergence of another ETDZ on the other side of Suzhou, which created direct competition with the SIP. The Suzhou new district The Suzhou New District (SND) was thus built by the local municipality. SND was first established in 1992, and was considered a ‘high-tech’ ETDZ with a science and technology theme. It promoted a ‘garden-like’ atmosphere with ‘liveable surroundings’. The infrastructure in SND was developed through establishing a banking sector and a mediumrise expatriate living area. The growth of this ETDZ was credited to the development of its infrastructure services. SND established a theme park and invested in recruiting, employment and training industries. The land quality and position of SND was superior to that of the SIP and it was located right beside the city centre of Suzhou, whereas the SIP was, at this time, somewhat more remote. Despite fierce initial rivalry, both ETDZs are now successfully established and are attracting substantial FDI; the local TVEs are booming and local private business is encouraged. Considerations for FDI in the ETDZs While Jiangsu province now boasts a number of development zones, the Suzhou New District and the Suzhou Industrial Park are the main economic and technological development zones in this region. Specific regulations vary within each zone, which provide incentives for foreign direct investment. Important considerations for the ETDZs are the infrastructure (such as water plants, sewage and gas, power supply and ISDN telecommunications) and a preferential tax policy offering favourable terms to foreign investment companies. Furthermore, housing for both expatriates and workers, along with sporting, cultural, dining and shopping precincts, enhances the quality of life for residents living in the region. For example, SND provides incentives for housing local workers and SIP has a waste management plan. The administrative authorities within the zones play an integral role in the operations of the ETDZs and in the activities of enterprises within those zones. To help the facilitation of business by making it easier to obtain the permits and licences required for registration as a foreign enterprise in China, the SIP and SND both promote their ‘one-stop set-up shops’ for foreign enterprises. Promotion portraying the convenience of the residential and recreation facilities is clearly visible. When faced with the depth of regulation, language and cultural differences, and bureaucratic delays in obtaining approvals and registrations, facilities within the ETDZs assist foreign enterprises to start up their operations in China. There are also facilities to conduct major recruitment fairs on behalf of enterprises. Each year these fairs attract graduates from all over China. As part of the process, administration checks, qualification and reference checks, along with additional training, are provided, which streamlines employment for both candidates and enterprises. Cultural differences between the international and local culture prevail. SND is located close to the old city of Suzhou, whereas there is a distinctly more international flavour in the SIP, which hosts a ‘Singapore Square’ along with a tax policy favouring foreign investment. The rapid expansion in the ETDZs also has its drawbacks for foreign direct investors. The infrastructure development has not always kept up with expansion in the zones. Access to essential services, long waiting times for operational components and minimal or reduced social and cultural activities are the consequences of rapid progress. This, in turn, has produced diverse opportunities for local entrepreneurs to seize the chance to capitalise on gaps in economic development. The ETDZs are notable for their ability to assimilate supply chains quickly. Because of the large geographical area of the ETDZs, many small townships are located within them. Township enterprises have begun producing components required by the foreign direct investors. Most of these townships were communes during the Maoist area, meaning that production is still organised along these lines. In many instances, these TVEs were single-product-based and supplied Suzhou and Shanghai with farmed fish, fresh vegetables and craft items. Now, many have changed their production to manufacturing items required further along the supply chain. For example a ‘Technology Township’ in SND designs and provides research and development, then component manufacture, to supply the larger assembly plants located in the ETDZ. Therefore, a distinct logistical chain operates between the ETDZs and Shanghai, with components being manufactured in one location and assembled in another, while sales and marketing offices are situated in Shanghai. Perry and Yeoh (2000) provide a history of the China-Singapore- Suzhou Industrial Park. The authors describe the ETDZ’s success in attracting high-technology firms in the electronics, software, mobile telecommunications and pharmaceuticals sectors, although they also highlight the absence of R&D activities in some cases.

There are three main points to consider in discussion of the ETDZs located near Suzhou in Jiangsu province, China:

1 The area has been selected by China’s central government as region for major growth.

2 Multinational/international companies are established in, and are directly investing in, the region.

3 SMEs and TVEs have established supply chains to help facilitate supply and provide logistical channel support to FDI enterprises.

In C,

1) Create variables for:

your first and last name

total round trip to school and home (assuming you don't live on campus - make it your hometown).

cost of gas

2) Create a program that will:

output your first name and your total miles driven for the week.

output your last name with the total costs per week

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, 44,800 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 3,900 units, 40% 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 -Direct Materials/Work in Process-? and -Cost of Goods sold/Finished Goods-? . 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.

Jaden Kyler is the Chief Operating Officer at United Hospital in Newark New Jersey. He is analyzing the​hospital's overhead costs but is not sure whether nursing hours or the number of patient days would be the best cost driver to use for predicting the​ hospital's overhead.

He has gathered the following information for the last six months of the most recent​ year:

Data Table:

Requirements:

1. Are the​ hospital's overhead costs​ fixed, variable, or​ mixed? Explain.

The​ hospital's overhead costs appear to be a ▼(fixed, mixed, variable cost). If it were a ▼ (fixed, mixed, variable ​cost), it would remain constant in total each month. If it were a ▼ (fixed, mixed, variable ​cost), it would remain constant on a per unit​ (of activity) basis. Both of the​ hospital's overhead cost per nursing hour and overhead cost per patient day ▼ (are fixed, vary) with volume.

2. Graph the​ hospital's overhead costs against nursing hours.

3. Graph the​ hospital's overhead costs against the number of patient days.

4. Do the data appear to be sound or do you see any potential data​ problems? Explain.

5. Use the​ high-low method to determine the​ hospital's cost equation using nursing hours as the cost driver. Predict total overhead costs if 24,500 nursing hours are predicted for the month.

6. Kyler runs a regression analysis using nursing hours as the cost driver to predict total hospital overhead costs. The Excel output from the regression analysis is as​ follows:

Regression analysis using nursing hours

SUMMARY OUTPUT​ - Nursing hours as cost driver

If 24,500 nursing hours are predicted for the​ month, what is the total predicted hospital​overhead?

7. Kyler then ran the regression analysis using number of patient days as the cost driver. The Excel output from the regression is shown​ here:

Regression analysis using number of patient days

SUMMARY OUTPUT​ - Using number of patient days as cost driver

If 3,650 patient days are predicted for the​ month, what is the total predicted hospital​overhead?

8. Which regression analysis​ (using nursing hours or using number of patient days as the cost​driver) produces the best cost​ equation? Explain your answer.

The purpose of this exercise is to show how the public sector will allocate private and public goods. Unlike the private sector the public sector decision to provide a good is based on a collective political decision rather than a market based decision.  For each type of good your decision to provide the good must meet the following conditions: the total must receive a majority of voting support and it must raise enough taxes to cover costs.   Every resident pays the same amount of taxes.

Private Good.   In the table below are three individual demand schedules for ECONOBREAD. The weekly amount of bread loaves demanded per week is provided for each price.  It costs you $3 to produce each loaf of bread.  There are no fixed costs.

Price ($/loaf of bread per week)

             7          6          5          4          3          2          1          

#1        2          2          3          3          3          4          4          

#2        0          0          0          1          1          1          2          

#3        1          2          2          2          3          3          3                      

Market Demand Q^d =            __        __        __        __        __        __        __

Competitive Solution: P = MC , Qc = _____, Pc = _____

Total Cost of Production = ____ Total Taxes from each resident = TC/3 = _____

Resident Total Valuation =                #1 = _____, #2 = _____, #3 = _____

Vote on Production (Y or N)              #1 = _____, #2 = _____, #3 = _____

Impact on Budget = Total Taxes – Total Cost = _____ - _____ = _____

Public Good.This good being distributed is a pure public good.  Once produced it can be offered to anyone without a reduction in quantity.  A firm offers free videos to customers.  The table below lists three customers and the value they place on the number of movies offered each week.  It costs the firm $8 per video to supply.  

# of videos per week

1          2          3          4          5          6          7

Value to Cust. #1        6          5          5          5          4          4          4

Customer #2               2          2          2          1          1          1          0

Customer #3               4          4          3          3          3          2          2          

Total Value of good               __        __        __        __        __        __        __

Competitive Solution: Total Value = MC, Qc = _____

Total Cost of Production = _____Total Taxes from each resident = TC/3 = _____

Resident Total Valuation =                #1 = _____, #2 = _____, #3 = _____

Vote on Output level (Y or N)            #1 = _____, #2 = _____, #3 = _____

Impact on Budget = Total Taxes – Total Cost = _____ - _____ = _____