Given:

Santana Rey expects second-quarter 2018 sales of her new line of computer furniture to be the same as the first quarter’s sales (reported below) without any changes in strategy. Monthly sales averaged 45 desk units (sales price of $1,330) and 28 chairs (sales price of $580)

* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (135 desks × $1,330) + (84 chairs × $580) = $179,550 + $48,720 = $228,270
‡ Cost of goods sold: (135 desks × $830) + (84 chairs × $330) + $32,400 = $150,570

Santana Rey believes that sales will increase each month for the next three months (April, 53 desks, 40 chairs; May, 57 desks, 43 chairs; June, 61 desks, 46 chairs) if selling prices are reduced to $1,240 for desks and $530 for chairs, and advertising expenses are increased by 10% and remain at that level for all three months. The products’ variable cost will remain at $830 for desks and $330 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,800 and other fixed expenses will remain at $6,800 per month.

Prepare budgeted income statements for the computer furniture segment for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month. (Can be done in excel)

1.For a linear demand curve that is downward sloping, the marginal revenue curve

Select one:

a. will be to the left of the demand curve and twice as steep.

b. will be to the right of the demand curve and twice as steep.

c. will be to the left of the demand curve and half as steep.

d. will be the same as the demand curve.

2.The demand curve that a monopolist faces is:

Select one:

a. not affected by changes in the prices of other goods.

b. the market demand curve.

c. the same as the demand curve that faces a perfectly competitive firm.

d. generally flatter than the demand curve that faces a perfectly competitive firm.

3.

The Herfindahl-Hirschman (HH) Index is used to

Select one:

a. measure the degree of market concentration in an industry.

b. None of the above

c. measure the degree of nonprice competition.

d. measure the extent of price leadership.

4.

The kinked demand curve model best reflects

Select one:

a. mutual interdependence among sellers.

b. price rigidities in oligopolistic markets.

c. a game theory approach to price-output decisions.

d. All of the above

5.

When a monopolist sells two units of output its total revenues are $100. When the monopolist sells three units of output its total revenues are $120. When the monopolist sells three units of output, the price per unit is:

Select one:

a. $33.33.

b. $6.67.

c. $40.

d. $20.

6.

When a monopolist sells two units of output its total revenues are $100. When the monopolist sells three units of output, its price per unit is $35. The monopolist's marginal revenue from selling the third unit of output is:

Select one:

a. $105.

b. $35.

c. $5.

d. $33.33.

Allocating Joint Costs Using the Constant Gross Margin Method

A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,900. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:

Required:

1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.

2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

(Note: The joint cost allocation does not equal $12,900 due to rounding.)

3. What if it cost $2 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to these three products? Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

(Note: The joint cost allocation does not equal $12,900 due to rounding.)

Allocating Joint Costs Using the Constant Gross Margin Method

A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,900. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:

Required:

1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.

2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

(Note: The joint cost allocation does not equal $12,900 due to rounding.)

3. What if it cost $2 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to these three products? Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

(Note: The joint cost allocation does not equal $12,900 due to rounding.)

1. Allocating Joint Costs Using the Constant Gross Margin Method

   A company manufactures three products, L-Ten, Triol, and Pioze, from a joint process. Each production run costs $12,700. None of the products can be sold at split-off, but must be processed further. Information on one batch of the three products is as follows:

   Product	Gallons	Further Processing Cost per Gallon	Eventual Market Price per Gallon
   L-Ten	3,400	$0.50	$2.00
   Triol	4,000	1.00	5.00
   Pioze	2,600	1.50	6.00

   Required:

   1. Calculate the total revenue, total costs, and total gross profit the company will earn on the sale of L-Ten, Triol, and Pioze.

   Total Revenue	$
   Total Costs	$
   Total Gross Profit	$

   2. Allocate the joint cost to L-Ten, Triol, and Pioze using the constant gross margin percentage method. Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

   	Joint Cost
   Product	Allocation
   L-Ten	$
   Triol
   Pioze
   Total	$

   (Note: The joint cost allocation does not equal due to rounding.)

   3. What if it cost $2.00 to process each gallon of Triol beyond the split-off point? How would that affect the allocation of joint cost to these three products? Round the gross margin percentage to four decimal places and round all other computations to the nearest dollar.

   	Joint Cost
   Product	Allocation
   L-Ten	$
   Triol
   Pioze
   Total	$

   (Note: The joint cost allocation does not equal due to rounding.)

Check My Work

            Kiko Ltd is a family owned Asian grocery business that specialises in selling a variety of Japanese products. The company has recently started to receive orders from hotels across the state. It is now 1 October, and Mr Seike, the owner, is very pleased with his growing business. He compiled data on the business’ revenue and purchases for the past three months, and prepared forecasts for the upcoming three months as shown below:

The cash balance on 1 October is $95,000; 
The following information is also pertinent to Kiko’s cash movements:

          20% of all sales per month are for cash, 70% of all credit sales are collected within the month of sale, 
20% of credit sales are collected in the month following the sale, 7% of credit sales are collected two 
months after the sale, and the remaining 3% is deemed uncollectible; 


          70% of the amount for goods purchased is paid in the month of purchase, with the remaining 30% is 
paid in the following month; 


          Wages total $12,000 each month and are paid in the month they are incurred; 


          Budgeted operating expenses total $22,000 per month, and includes depreciation ($14,000) and rent 
($2,500). Rent was prepaid in June for 6 months (up to and including December); and 


          $1,200 in interest payments are made on October 17th. 


Based on the above information, prepare the following for Kiko Ltd: 


(a) A schedule of cash receipts for October from sales.

(b) A cash budget for October.

(c) Recommend three options for improving the speed of cash collections from sales to improve the cash position.

Consider the following story:

Diversifun, Inc., an insurance company, recently decided to offer boat insurance. Diversifun was concerned that the most likely boat insurance customers would be the least competent, highest-risk boat captains, because they stand to benefit most from boat insurance coverage. Since Diversifun cannot distinguish perfectly between high-risk and low-risk skippers, it decided to set its boat-insurance premiums a bit higher to account for the foolhardy sea captains.

The economic problem in this story is known as:

A) Adverse selection

B) Signaling

C) Moral hazard

D) Screening

The owner of a barbershop has two barber chairs and one employee. The owner will cut a customer’s hair only if her employee is already busy cutting someone else’s hair. Service times are exponentially distributed with mean 1 hour, and the time between arrivals is exponentially distributed with mean 1.5 hours. When the barbershop is full(i.e., two customers are getting haircuts), people must wait outside in line.

a)What percentage of the time is the owner cutting hair?

b)If the owner wants to spend at most 10% of her time working, what is the maximum arrival rate that can be tolerated?

A pizza delivery driver, always trying to increase tips, runs an experiment on his next 90 deliveries. He flips a coin to decide whether or not to call a customer from his mobile phone when he is five minutes away, hoping this slight bump in customer service will lead to a slight bump in tips. After 90 deliveries, he will compare the average tip percentage between the customers he called and those he did not.

g) Is the experiment blind? Can it be double-blind? Explain.

h) Name some confounding variables that might influence the experiment's results.

1. Myron apparently thought that high profits guaranteed adequate cash to pay any bills as they came due. Explain to Myron the difference between Net Income and Cash Flow. In particular, explain how even a profitable, highly efficient firm can experience cash crunches and have a need for outside capital

2. In an attempt to encourage dealers to pay sooner, Myron offered terms of 2/10 net 90. Do you find it surprising that only 10% of his customers took advantage of the discount and paid within 10 days? Defend your answer.