In addition to other costs, Grosha Telephone Company planned to incur $600,000 of fixed manufacturing overhead in making 500,000 telephones. Grosha actually produced 508,000 telephones, incurring actual overhead costs of $599,400. Grosha establishes its predetermined overhead rate based on the planned volume of production (expected number of telephones).

Required

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

B. Determine the fixed cost spending variance and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

C. Determine the fixed cost volume variance and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

1. A firm produces output using capital (K) and labor (L). Capital and labor are perfect complements and 1 unit of capital is used with 2 units of labor to produce 1 unit of output. Draw an example of an isoquant. If wages and rent are $2 and $3, respectively, what is the Average Total Cost?

2. A firm has a production function given by Q=4KL where K, L and Q denote capital, labor, and output, respectively. The firm wants to produce an output of 16 units at a minimum cost. Show the solution graphically assuming that wages and rent are $1 and $2, respectively.

3. Consider a perfectly competitive firm in the short run. It has Total Cost and Marginal Cost functions given by TC(Q)=10+2Q2 and MC(Q)=4Q, respectively. The firm faces a price of P=$20. Determine the output that the firm will produce and the profit. Show the solution graphically.

Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output but they are experiencing economic losses.

a.[5 marks] Explain how ATC, AVC and MC are related (Note: the relationship of these cost curves is same whether there is loss or profit). Explain how the price of fertilizer compares to the ATC, AVC and MC of producing fertilizer.

b.[10 marks] Draw two graphs side by side illustrating the present situation for the single firm and the entire market. Cleary label the diagrams and explain what you draw for both diagrams.

c. [10 marks] Assuming there is no change in demand curve or in cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market. Draw a new set of diagrams to show the firm’s and market’s long-run equilibrium.

A firm produces gizmos according to the production function Q =10KL , where Q is the quantity of gismos produced, K is the quantity of capital rented and L is the quantity of labour hired. The manager has been given a production target: Produce 9,000 gizmos per day. He is informed that the daily rental price of capital is $400 per unit and the wage rate is $200 per day. a) Currently, the firm has 10 units of capital. How many workers should the manager hire to meet the production target? What is the firm’s daily total cost? b) In the long run, how much K and L should the manager choose to minimize the cost of producing 9,000 gizmos per day? What is the long-run daily total cost? c) Illustrate your answers in a) and b) on the iso-quant and iso-cost diagram

MicroDecor produces stylish microwave ovens. Each unit sells for $620. During 20X7, the company produced 23,000 units, and sold 21,000 units. Beginning inventory contained a total of 3,200 units. Production and SG&A costs have been stable for many years. Assume the per unit costs in beginning and ending inventory are identical. Per unit cost information follows:

Annual fixed manufacturing overhead is $245,000. Annual fixed SG&A totals $1,500,000.

(a) Determine the number of units in ending inventory, and calculate the total carrying cost using

both variable and absorption costing.

(b) Calculate 20X7 net income using variable costing.

(c) Calculate 20X7 net income using absorption costing.

Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? ^−3 .

a) Assume that the total cost function is ??(?) = 5 + 4?. Use the inverse elasticity pricing rule (IEPR) to obtain the profit maximizing price that this monopolist should charge.

b) How would your result in part (a) change if the demand curve changes to ?(?) = 12? ^−5 , but still assuming the same cost function as in part (a)? Interpret your answer.

c) Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? ^−3 . Assume that the total cost function is ??(?) = 5 + 2?^ 2 . Use the inverse elasticity pricing rule (IEPR) to obtain the profit-maximizing price that this monopolist should charge.

d) How would your result in part (c) change if the demand curve changes to ?(?) = 12?^ −5 , but still assuming the same cost function as in part (c)? Interpret your answer.

Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? −3 .

a) Assume that the total cost function is ??(?) = 5 + 4?. Use the inverse elasticity pricing rule (IEPR) to obtain the profit maximizing price that this monopolist should charge.

b) How would your result in part (a) change if the demand curve changes to ?(?) = 12? −5 , but still assuming the same cost function as in part (a)? Interpret your answer.

c) Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? −3 . Assume that the total cost function is ??(?) = 5 + 2? 2 . Use the inverse elasticity pricing rule (IEPR) to obtain the profit-maximizing price that this monopolist should charge.

d) How would your result in part (c) change if the demand curve changes to ?(?) = 12? −5 , but still assuming the same cost function as in part (c)? Interpret your answer.

1. Parker Company produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented here:

Total manufacturing overhead costs are as follows:

Total Machining costs            $375,000

Setup costs                              $120,000

Inspection costs                      $105,000

1. Choose a cost driver for each overhead cost pool and calculate the manufacturing overhead cost per unit for each product. (1.5 pt)

2. Compute the manufacturing cost per unit for each product using Activity-based Costing.(2 pts)

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