Welfare analysis can get complicated if there are multiple market failures. “The General Theory of the Second Best,” by Lipsey and Lancaster (Review of Economic Studies 24 (1956–57): 11–32) argues that when there are multiple market failures, fixing only one market failure may make things worse than doing nothing. Two market failures may work in opposite directions; for instance, fixing one may have unintended consequences for the other. For example, consider a monopolist that pollutes. When a firm is a monopolist, it reduces its production so that it can increase price; although it sells fewer units, the higher price more than makes up for the reduced volume. Consumers lose, and total welfare is reduced, due to the higher price and lower quantity. The pollution problem, in contrast, is excess production.

a. Draw a supply-demand figure for a firm with the demand curve Q = 10 - P, and marginal cost curve MC = 2 (based on total costs C = 2 * Q). If this were not a monopoly, what would be the equilibrium price and quantity? Calculate the firm’s total revenue, total cost, and profit. Also calculate consumer surplus. Net benefits are consumer surplus plus producer surplus, which equals profit in this case; calculate that value.

b. Suppose that, instead, the firm decided to act like a monopolist and restrict output. It produces 4 units and charges $6 for each unit. Calculate the firm’s total revenue, total cost, and profit; consumer surplus; and net benefits. Are net benefits higher or lower? Is the firm better or worse off?

c. Now let’s consider the pollution problem. Suppose the firm produces marginal damages of $4/unit. For (a) and (b), recalculate net benefits to account for the social damages.

d. Find the new efficient equilibrium, now that social marginal costs are $6/unit. Calculate the firm’s total revenue, total cost (including the pollution cost), and profit; consumer surplus; and net benefits.

e. The monopolist, if forced to pay social marginal costs, will produce 2  units and charge $8 for each unit. Calculate the firm’s total revenue, total cost (including the pollution cost), and profit; consumer surplus; and net benefits.

f.Compare the results for (c), (d), and (e). Rank them from the highest net benefits to the lowest.

g. A regulator who can break up monopolies is examining this situation. Compare net benefits for the monopolist who pollutes [the recalculation for the monopolist in Part (c)] with the competitive firm that pollutes [the recalculation for the competitive firm in Part (c)]. Will the regulator improve net benefits by breaking up the monopoly?

h. A regulator who addresses pollution separately examines the situation. Compare net benefits for the monopolist who pollutes [the recalculation for the monopolist in (c)] with net benefits for the monopolist who pays the full costs of pollution in (e). Will this regulator increase net benefits by taxing pollution?

i. Does the Theory of the Second Best apply here? Does fixing a market failure always improve welfare, compared to not fixing it?

1. For 2018, X Company estimated production of 3,000 units of finished product and direct material cost of $20,550. Actual production in 2018 was 2,800 units of finished product, and actual direct material cost was $14,520.

What was the direct material static budget for 2018?

2. At the start of 2018, X Company developed the following budgeted total cost function: $8.53X + $229,700, where X is number of units produced. Budgeted production for the year was 10,800 units.

Actual total costs and actual production in 2018 were different than the budgeted amounts. The actual total cost function turned out to be $9.03X + $206,930, and actual production was 12,000 units.

What was the 2018 flexible budget variance for total fixed cost [a positive number means a favorable variance and a negative number means an unfavorable variance]?

What was the 2018 flexible budget variance for total variable costs [a positive number means a favorable variance and a negative number means an unfavorable variance]?

3. X Company started business on June 1 and prepares monthly financial statements. The following were June transactions:

1. received $44,000 from a group of investors
2. bought $8,386 of merchandise, $3,270 for cash and $5,116 on account
3. sales were $41,900, of which $37,675 were for cash and $4,225 were on account; Cost of Goods Sold was $24,302
4. paid $3,543 to suppliers for merchandise previously bought on account
5. collected $2,888 from customers on account
6. paid expenses totalling $8,506

What were total assets on June 30?

What was Net Income in June?

4.

X Company prepares monthly financial statements. The following is the company's July 1 Balance Sheet:

The following were the company's July transactions:

1. borrowed $25,000 from a bank
2. bought equipment costing $9,800, paying the manufacturer $5,400 in cash and signing a note for $4,400
3. purchased a $6,000, five-year insurance policy, paying for two years in advance

What was the balance in the Cash account on July 31 [ignore adjusting entries]?

What were total assets on July 31 [ignore adjusting entries]?

5. X Company prepares monthly financial statements. Its accountant recorded the following October 1 transactions and the appropriate adjusting entries on October 31:

1. On October 1, the company paid rent for the final three months of the year. Rent was $1,275 per month.
2. On October 1, the company purchased equipment that cost $10,000, borrowing the full amount from a bank. The equipment has a life of three years and a salvage value at that time of $1,000. The company will repay the loan on December 31, along with interest at $104 per month.

What was the effect of the accountant's entries on total assets?

What was the effect of the accountant's entries on Net Income in October?

1-Define cost Accounting and enlist 10 example of product cost with explanation?

2-Define period cost and enlist 10 examples with explanation?

3-Define variable cost, fixed cost and mixed cost and enlist 10 examples of each category with explanation?

4-Define Sunk cost and opportunity cost and enlist 10 examples of each cost with explanation?

5- develop one numerical question from yourself and then find variable cost, fixed cost and total cost by using equation (Y=a + bx) with high low method (each student question must be different otherwise it will not be considered?

Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi-purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hours × (54,000 + 10,200)]. Expected annual manufacturing overhead is $ 1,578,800. Thus, the predetermined overhead rate is $ 16.39 or ($ 1,578,800 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models.

The company’s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows:

(a)

Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.25.)

(b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).

(round overhead rate to 2 decimal places.)

(c) Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (round overhead cost per unit to 2 decimal places and cost assigned to 0 decimal places.)

(d) Compute the total cost per unit for EACH product under ABC.

Please discuss the cost of quality as a combination of cost of conformance and cost of no conformance

The following table shows the cost information for a product at the 15,000-units level. Use the table to answer these questions: What are the incremental and marginal costs for producing 5,000 additional units? Suppose that, at a new production level of 30,000, the fixed cost increases to $3 million, what are the incremental and marginal costs for the additional 10,000 units? All cost figures are in dollars. Calculate [USING EXCEL]

5. A Cobb-Douglas production function will yield a cost function that has constant Marginal Cost a. True b. False ______

6. The MC of a firm will intersect the ATC at the minimum point of MC a. True b. False _____

7. For a cost-minimizing firm, it can continue to operate even if profits are negative. a. True b. False _____

8. What cost concept do you use to determine whether a firm will shut down? a. Marginal Cost b. Average Variable Cost c. Average Total Cost

Which of the following would be an acceptable measure of activity for a material handling activity cost pool?

A. Option A

B. Option B

C. Option C

D. Option D

EMD Corporation manufactures two products, Product S and Product W. Product W is of fairly recent origin, having been developed as an attempt to enter a market closely related to that of Product W. Product W is the more complex of the two products, requiring 3 hours of direct labor time per unit to manufacture compared to 2 hour of direct labor time for Product S. Product W is produced on an automated production line.

Overhead is currently assigned to the products on the basis of direct-labor-hours. The company estimated it would incur $912,811 in manufacturing overhead costs and produce 19,000 units of Product W and 76,000 units of Product S during the current year. Unit cost for materials and direct labor are:

Required:

a-1. Compute the predetermined overhead rate under the current method of allocation.

a-2. Determine the unit product cost of each product for the current year.

b. The company's overhead costs can be attributed to four major activities. These activities and the amount of overhead cost attributable to each for the current year are given below:

Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

- Compute the predetermined overhead rate under the current method of allocation.

-Determine the unit product cost of each product for the current year.

-Using the data above and an activity-based costing approach, determine the unit product cost of each product for the current year.

Daston Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,710 units of Product F and 2,680 units of Product G during the current year. Data relating to the company’s three activity cost pools are given below for the current year:

Required:

Using the activity-based costing approach, determine the overhead cost per unit for each product. (Round your answers to 2 decimal places.)

Problem 2-16 Plantwide Predetermined Overhead Rates; Pricing [LO2-1, LO2-2, LO2-3]

Landen Corporation uses a job-order costing system. At the beginning of the year, the company made the following estimates:

During the year, Job 550 was started and completed. The following information is available with respect to this job:

Required:

1. Assume that Landen has historically used a plantwide predetermined overhead rate with direct labor-hours as the allocation base. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

2. Assume that Landen’s controller believes that machine-hours is a better allocation base than direct labor-hours. Under this approach:

a. Compute the plantwide predetermined overhead rate.

b. Compute the total manufacturing cost of Job 550.

c. If Landen uses a markup percentage of 200% of its total manufacturing cost, what selling price would it establish for Job 550?

(Round your intermediate calculations to 2 decimal places. Round your "Predetermined Overhead Rate" answers to 2 decimal places and all other answers to the nearest whole dollar.)

Problem 2-18 Job-Order Costing for a Service Company [LO2-1, LO2-2, LO2-3]

Speedy Auto Repairs uses a job-order costing system. The company’s direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics’ hourly wages. Speedy’s overhead costs include various items, such as the shop manager’s salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room.

The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates:

Required:

1. Compute the predetermined overhead rate.

2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job:

Compute Mr. Wilkes’ total job cost.

3. If Speedy establishes its selling prices using a markup percentage of 60% of its total job cost, then how much would it have charged Mr. Wilkes?

“In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of $20 per drum, we would be paying $4.45 less than it costs us to manufacture the drums in our own plant. Since we use 65,000 drums a year, that would be an annual cost savings of $289,250.” Antilles Refining’s current cost to manufacture one drum is given below (based on 65,000 drums per year):

A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are:

Alternative 1: Rent new equipment and continue to make the drums. The equipment would be rented for $156,000 per year.

Alternative 2: Purchase the drums from an outside supplier at $20 per drum.

The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labor and variable overhead costs by 25%. The old equipment has no resale value. Supervision cost ($52,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment’s capacity would be 100,000 drums per year.

The company’s total general company overhead would be unaffected by this decision. (Round all intermediate calculations to 2 decimal places.)

1. To assist the managing director in making a decision, prepare an analysis showing the total cost and the cost per drum for each of the two alternatives given above. Assume that 65,000 drums are needed each year.   

a. What will be the total relevant cost of 65,000 drums if they are manufactured internally as compared to being purchased?

b. What would be the per unit cost of each drum manufactured internally? (Round your answer to 2 decimal places.)

c. Which course of action would you recommend to the managing director?

a-1. What will be the total relevant cost of 80,000 drums if they are manufactured internally?

a-2. What would be the per unit cost of drums?

2 a-3. What course of action would you recommend if 80,000 drums are needed each year?

b-1. What will be the total relevant cost of 100,000 drums if they are manufactured internally?

b-2. What would be the per unit cost of drums?

b-3. What course of action would you recommend if 100,000 drums are needed each year?