vGordon County Hopsital

In a remote part of the county Gordon County Hospital has established a clinic that provides two basic types of services, routine office visits (ROV) and emergency care (EC). Because you impressed the CEO with your work on costing at the hospital, you were asked to cost out services at the remote clinic. Because you feel that ABC Costing enables a better understanding of the cost dynamics in any entity, you decided to employ ABC for this project. As a result, you analyzed activities and associated costs with the help of clinic personnel and created the following schedule:

A)Use ABC costing to calculate the total cost per visit of ROV and EC.

B) Once you have total cost per visit of each type of service, what clues do you have about how to reduce costs? Be careful to not make suggestions that may impact quality of care in search of reduced costs.

A. Long Run vs. Short Run (40 pts) X=(1/2)L^1/4K^3/4, wL=$2, wK=$96 (dX/dL=(1/8)L^-3/4K^3/4,

dX/dK= (3/8)L^1/4K^-1/4              

1.(2 pts)________________________________ For the point L=16 and K=81, what isoquant are we on?

2.(3 pts)___________________________________ From this point (L=16, K=81), to produce the same amount of X at a cheaper cost, should we use more L and less K OR less L and more K? Explain.

3. (3 pts)_________________________________Find the equation for the output expansion path.

4. (3 pts)_________________________________ Find the long run total cost function (total cost as a function of X alone)

5.(3 pts)_________________________________ Suppose K is stuck at K=16 in the short run. Find the short run total cost function. (total cost as a function of X alone) (Hint: Problem is easier if you keep answers in fractions)

6. (12 pts) Complete the following table for Point A, Point B, and Point C. (Fraction answers are possible)

Point A: The cheapest way to produce X=64

Point B: The cheapest way to produce X=64 when K is stuck in the short run at K=16

Point C. When we're producing X that gives us the lowest average cost when K is stuck in the short run at K=16

A. Long Run vs. Short Run (40 pts) X=(1/2)L^1/4K^3/4, wL=$2, wK=$96 (dX/dL=(1/8)L^-3/4K^3/4,

dX/dK= (3/8)L^1/4K^-1/4              

1.(2 pts)________________________________ For the point L=16 and K=81, what isoquant are we on?

2.(3 pts)___________________________________ From this point (L=16, K=81), to produce the same amount of X at a cheaper cost, should we use more L and less K OR less L and more K? Explain.

3. (3 pts)_________________________________Find the equation for the output expansion path.

4. (3 pts)_________________________________ Find the long run total cost function (total cost as a function of X alone)

5.(3 pts)_________________________________ Suppose K is stuck at K=16 in the short run. Find the short run total cost function. (total cost as a function of X alone) (Hint: Problem is easier if you keep answers in fractions)

6. (12 pts) Complete the following table for Point A, Point B, and Point C. (Fraction answers are possible)

Point A: The cheapest way to produce X=64

Point B: The cheapest way to produce X=64 when K is stuck in the short run at K=16

Point C. When we're producing X that gives us the lowest average cost when K is stuck in the short run at K=16

Income Statements under Absorption and Variable Costing

Patagucci Inc. manufactures and sells athletic equipment. The company began operations on August 1, 2016, and operated at 100% of capacity (75,900 units) during the first month, creating an ending inventory of 6,900 units. During September, the company produced 69,000 garments but sold 75,900 units at $85 per unit. The September manufacturing costs and selling and administrative expenses were as follows:

a. Prepare an income statement according to the absorption costing concept for September.

b. Prepare an income statement according to the variable costing concept for September.

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the income statement will have a lower income from operations.

Exercise 2-15 Plantwide and Departmental Predetermined Overhead Rates; Job Costs [LO2-1, LO2-2, LO2-3, LO2-4]

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

Delph Company uses a job-order costing system and has two manufacturing departments—Molding and Fabrication. The company provided the following estimates at the beginning of the year:

During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:

Delph had no underapplied or overapplied manufacturing overhead during the year.

Exercise 2-15 Part 2

2. Assume Delph uses departmental predetermined overhead rates based on machine-hours.

c. If Delph establishes bid prices that are 140% of total manufacturing costs, what bid prices would it have established for Job D-70 and Job C-200?

d. What is Delph’s cost of goods sold for the year?

Exercise 2-6 Job-Order Costing for a Service Company [LO2-1, LO2-2, LO2-3]

Tech Solutions is a consulting firm that uses a job-order costing system. Its direct materials consist of hardware and software that it purchases and installs on behalf of its clients. The firm’s direct labor includes salaries of consultants that work at the client’s job site, and its overhead consists of costs such as depreciation, utilities, and insurance related to the office headquarters as well as the office supplies that are consumed serving clients.

Tech Solutions computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 92,500 direct labor-hours would be required for the period’s estimated level of client service. The company also estimated $1,156,250 of fixed overhead cost for the coming period and variable overhead of $0.50 per direct labor-hour. The firm’s actual overhead cost for the year was $1,177,550 and its actual total direct labor was 97,750 hours.

Required:

1. Compute the predetermined overhead rate.

2. During the year, Tech Solutions started and completed the Xavier Company engagement. The following information was available with respect to this job:

Compute the total job cost for the Xavier Company engagement.

Required 1

Required 2

Compute the predetermined overhead rate. (Round your answer to 2 decimal places.)

Compute the total job cost for the Xavier Company engagement. (Round your intermediate calculations to 2 decimal places.)

You own a boutique store in Lahaina in Maui Island, Hawaii. Your store carries top-of-the-line specialty apparel and fosters a friendly and hospitable environment. You recently attended a marketing conference and listened to several presentations about customer lifetime value (CLV), the total amount a customer will spend from acquisition through the end of a relationship with a brand. You learned that the apparel industry is overhauling to become data-driven and customer-centric. Obtaining the CLV will help you to both decide who to target in advertisement and sales campaigns and assess how effective those campaigns will be at increasing customer value. Consequently, by using CLV metrics, you will be able to segment, profile, and target your customers, understand those customers’ characteristics, and pay them more attention to keep them loyal to your business. After returning home, you were interested in finding out your customer lifetime value so that you could develop promotional campaigns to improve your CLV. In order to calculate the CLV metric, a speaker at the marketing conference suggested that you use data from your company’s books related to four variables. The first variable is average value of sales per year. Your books showed that on average, the average value of sales per year was $750. The second variable is average customer acquisition cost. It includes promotion expenses, sales expenses, and your costs of attracting new customers during the first year, and it was found to be $400. The third variable, average customer retention rate, consists of the percentage of customers that will most probably buy from your store next year, and it was found to be 70 percent. The fourth variable, customer retention cost, is the cost of keeping customers loyal to your business, and it was found to be $100. Now that you have all the figures that you need, you take your notes out of your briefcase to check the formula that you learned at the marketing conference. The version of CLV they presented at the conference was: Customer lifetime value = [1 / (1 – Average customer retention rate)] X (Average value of sales per year) – (Average customer acquisition cost + Average customer retention cost). Using the worksheet below, you will need to input the data and create the formula in the required cell. Replace the variables in the formula above with the appropriate cell. 1. For the above data, what is the current CLV? -$511 $2,100 $511 $2,000 2. You were unhappy with your current CLV, so you conducted a promotional campaign that included advertisements in local newspapers, magazines and TV commercials to increase your customer value. The new data show that acquisition cost = $300, retention rate = 75 percent, retention cost = $150 and customer average value per year = $850. What is your new CLV? $2,950 -$461 $3,000 $461 3. Your new results still fell a little bit short of meeting your business goals. So, you were motivated to develop one more promotional campaign that included several channels of social media. Your updated data show that acquisition cost = $250, retention cost = $200, retention rate = 80 percent and customer average value per year = $2,500. What is your updated CLV? -$482 $12,050 $482 $15,020

4. You were happily surprised with the results. So, you decided to launch a new campaign to provide special attention to and take care of your clientele. You invite your customers to a private dinner party at a fancy French hotel restaurant in Lahaina with your products displayed in the background. After a few months, you notice that your data show that acquisition cost = $200, retention cost = $100, retention rate = 85 percent and customer average value per year = $1250. What is your new CLV?

$315

$8,033

-$315

-$8,033

5. As a marketing manager, which element of the formula do you think is the most important to obtaining a higher CLV?

customer retention rate

customer average value per year

customer acquisition cost

customer retention cost

Atwich Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 600 units. The costs and percentage completion of these units in beginning inventory were:

  Cost percent complete
Material Cost $10,700 70%

Conversion Cost $13,900 50%

A total of 5,100 units were started and 4,400 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:
  Material cost $103,700

Conversion cost $ 180,900
The ending inventory was 75% complete with respect to materials and 10% complete with respect to conversion costs.
Note: Your answers may differ from those offered below due to rounding error. In all cases, select the answer that is the closest to the answer you computed. To reduce rounding error, carry out all computations to at least three decimal places.

The cost of ending work in process inventory in the first processing department according to the company's cost system is closest to:

1-      Total cost to account for using weighted average units

2-      Equivalent unit of production

3-      Cost of units completed and transferred out

4-      Cost per equivalent

Builder Products, Inc., uses the weighted-average method in its process costing system. It manufactures a caulking compound that goes through three processing stages prior to completion. Information on work in the first department, Cooking, is given below for May:

Required:

1. Compute the equivalent units of production for materials and conversion for May.

2. Compute the cost per equivalent unit for materials and conversion for May.

3. Compute the cost of ending work in process inventory for materials, conversion, and in total for May.

4. Compute the cost of units transferred out to the next department for materials, conversion, and in total for May.

5. Prepare a cost reconciliation report for May.

Please show the work and not just the answer. Please and Thank you!

Explain why a firm only shuts down once the price drops to the minimum of the average variable cost (AVC) curve, rather than shutting down as soon as the price falls below the minimum of the average total cost (ATC) curve.