2 . Atlantic Company has the following monthly flexible budget information based on an expectation of operating at 80% of the factory’s capacity or 10,000 units produced:

During the current month, the company operated at 70% of capacity and employees worked 16,500 hours and the flowing actual overhead costs were incurred:

Required:

1. Compute the predetermined overhead rate per direct labor hour for variable overhead, fixed overhead, and total overhead.
2. Compute the variable overhead spending and efficiency variances.

Compute the fixed overhead spending and volume variance

QUESTION 46

1. The Keynesian approach to fiscal policy calls for

   a		budget deficits during periods of inflationary pressure
   b		budget surpluses during periods of high unemployment
   c		a balanced budget despite the state of the economy
   d		tax cuts during recession
   e		spending increases during inflation

2. The income effect of an increase in the price of hominy grits (an inferior good) is a(n)

   	a	decrease in the demand for hominy grits
   	b	decrease in the quantity demanded of hominy grits
   	c	increase in the demand for hominy grits
   	d	increase in the quantity demanded of hominy grits
   	e	new demand curve because everything else is no longer constant

3. The Keynesian approach to fiscal policy calls for

   a		budget deficits during periods of inflationary pressure
   b		budget surpluses during periods of high unemployment
   c		a balanced budget despite the state of the economy
   d		tax cuts during recession
   e		spending increases during inflation

1A.

The IS curve is downward sloping for which of the following reasons?

1B. In Keynes' liquidity theory of the interest rate wealth is considered fixed and individuals choose a portfolio of which of the following two assets

1C. For Keynes swings in investor expectations could be wild, erratic and characterized by herd behavior. Keynes called these investor sentiments?

1D.

The figure depicts the effect of a decline in the real interest rate on investment. What could move the market to a point located at r1 and I0 ?

Sentential Logic Translation:

1. If the Monetarists (M) are right, then there is an increase in inflation (I) if and only if the money supply increases too fast (F). If the Keynesians (K) are right, then there is an increase in inflation if and only if there is a decrease in unemployment (D). If the Libertarians (L) are right, there is an increase in inflation if and only if the federal government spends more than it takes in (S). The money supply increases too fast only if taxes are too low (T), and the federal government spends more than it takes in only if taxes are too low. There is no decrease in unemployment and taxes are not too low, but there is an increase in inflation. Therefore, neither the Monetarists, nor the Keynesians, nor the Libertarians are right.

C ) More jobs (J) will be created and the economy (E) will improve only if government spending (G) is increased and taxes (T) are not raised; however, the deficit (D) will be reduced only if taxes are raised and government spending is not increased, and the economy will improve if and only if the deficit is reduced

Marigold, Ltd. manufactures shirts, which it sells to customers for embroidering with various slogans and emblems. The standard cost card for the shirts is as follows.

Sandy Robison, operations manager, was reviewing the results for November when he became upset by the unfavorable variances he was seeing. In an attempt to understand what had happened, Sandy asked CFO Suzy Summers for more information. She provided the following overhead budgets, along with the actual results for November.

The company purchased 80,700 yards of fabric and used 92,300 yards of fabric during the month. Fabric purchases during the month were made at $2.80 per yard. The direct labor payroll ran $443,450, with an actual hourly rate of $12.25 per direct labor hour. The annual budgets were based on the production of 587,000 shirts, using 437,000 direct labor hours. Though the budget for November was based on 44,200 shirts, the company actually produced 40,700 shirts during the month.

(a) Calculate the direct materials price and quantity variances for November. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

(b) Calculate the direct labor rate and efficiency variances for November. (Round answers to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

(c) Calculate the variable overhead spending and efficiency variances for November. (Round answers to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

(d) Calculate the fixed overhead spending variance for November. (Round answer to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Question 41 1 pts

The effect of the multiplier associated with an initial increase in autonomous expenditures will be:

Group of answer choices

zero if there is an increase in the price level.

lessened if inflation occurs.

enhanced if inflation occurs.

the same whether or not inflation occurs.

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Question 42 1 pts

"Discretionary" fiscal policy is so named because it:

Group of answer choices

occurs automatically as the nation's level of GDP changes.

is invoked secretly by the Council of Economic Advisors.

involves specific change in taxes and expenditures undertaken expressly for stabilization purposes at the option of Congress.

is undertaken at the option of the nation's central bank.

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Question 43 1 pts

Expansionary fiscal policy is so named because it:

Group of answer choices

is aimed at achieving greater price stability.

a involves the expansion of the money supply

necessarily expands the size of the government

is designed to expand real GDP.

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Question 44 1 pts

The effect of built-in stabilizers (non-discretionary fiscal policies) on the business cycle is to:

Group of answer choices

only help the economy when it is in a downswing (recessionary).

make rich people richer and poor people poorer.

make both upswings and downswings smaller.

make the upswings larger and the downswings smaller.

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Question 45 1 pts

A $1 increase in government purchases will likely have a greater impact on real GDP than a $1 decrease in taxes because: (HINT: Don't forget about the mpc.)

Group of answer choices

government spending increases disposable income, tax cuts do not

a portion of a tax cut will be saved.

taxes vary directly with income.

government spending increases the money supply, tax cuts do not

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Question 46 1 pts

Which are contractionary fiscal policies?

Group of answer choices

decrease in the money supply.

increase in T and decreases in G.

decrease in T and increases in G.

increase taxation (T) and government spending (G).

an increase in interest rates.

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Question 47 1 pts

Which of the following best exemplifies "crowding out"? An increase in government spending:

Group of answer choices

is financed by borrowing, raising interest rates & causing private investment to fall

forces state & local governments to spend less.

is financed by an increase in the money supply, causing inflation.

causes taxes to rise automatically, reducing consumption.

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Question 48 1 pts

After virtually being in the economic stabilization policy "deep freeze" for over 2 decades, in the early days of "Great Recession":

Group of answer choices

none are correct

supply-side economics made a comeback

Walt Disney made a comeback

fiscal policy made a comeback

monetary policy made a comeback

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Question 49 1 pts

49. As noted in class, our (simple) spending multipliers were somewhat unrealistic. The actual size of the real world (or complex) spending multiplier is equal to (approximately):

Group of answer choices

10

1.5

0

negative 1.5

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Question 50 1 pts

Using an AS/AD diagram, how would you show expansionary fiscal policy?

Group of answer choices

with a leftward shift of the AS curve

with a rightward shift of the AS curve

with a leftward shift of the AD curve

with a rightward shift of the AD curve

The maintenance manager at a trucking company wants to build a regression model to forecast the time (in years) until the first engine overhaul based on four explanatory variables: (1) annual miles driven (in 1,000s of miles), (2) average load weight (in tons), (3) average driving speed (in mph), and (4) oil change interval (in 1,000s of miles). Based on driver logs and onboard computers, data have been obtained for a sample of 25 trucks. A portion of the data is shown in the accompanying table.

a. Estimate the regression model. (Negative values should be indicated by a minus sign. Round your answers to 4 decimal places.)

c. Based on part (a), are the signs of the regression coefficients logical?

The difference between a free trade area and a customs union is, in brief, that the first is politically straightforward but an administrative headache, while the second is just the opposite.

Consider first the case of a customs union. Once such a union is established, tariff administration is relatively easy: Goods must pay tariffs when they cross the border of the union, but from then on can be shipped freely between countries. A cargo that is unloaded at Marseilles or Rotterdam must pay duties there, but will not face any additional charges if it then goes by truck to Munich.

To make this simple system work, however, the countries must agree on tariff rates: The duty must be the same whether the cargo is unloaded at Marseilles, Rotterdam, or gor that matter Hamburg, because otherwise importers would choose the point of entry that minimized their fees. So a customs union requires that Germany, France, the Netherlands, and all the other countries agree to charge the same tariffs. This is not easily done: Countries are, in effect, ceding part of their soverignty to a supranational entity, the European Union.

This has been possible in Europe for a variety of reasons, including the belief that economic unity would help cement the post-war political alliance between European democracies.

But elsewhere these conditions are lacking. The three nations that formed NAFTA would find it very difficult to cede control over tariffs to any supranational body; if nothing else, it would be hard to devise any arrangement that would give due weight to U.S. interests without effectively allowing the United States to dictate trade policy to Canada and Mexico. NAFTA, therefore, while it permits Mexican goods to enter the United States without tariffs and vice versa, does not require that Mexico and the United States adopt a common external tariff on goods they import from other countries.

This, however, raises a different problem. Under NAFTA, a shirt made by Maxican workers can be brought into the United States freely. But suppose that the United States wants to maintain high tariffs on shirts imported from other countries, while Mexico does not impose similar tariffs. What is to prevent someone from shipping a shirt from, say, Bangladesh to Mexico, then putting it on a truck bond for Chicago?

The answer is that even though the United States and Mexico may have free trade, goods shipped from Mexico to the United States must still pass through a customs inspection. And they can enter the United States without duty only if they have documents providing that they are in fact Mexican goods, not trans-shipped imports from third countries.

But what is a Mexican shirt? If a shirt comes from Bangladesh, but Mexicans sew on the buttons, does that make in Mexican? Probably not. But if everything except the button were made in Mexico, it probably should be considered Mexican. The point is that administering a free trade area that is not a customs union require not only that the countires continue to check goods at the border, but that they specify an elaborate set of “rules of origin” that determine whether a goods is eligible to cross the border without paying a tariff.

As a result, free trade agreements like NAFTA impose a large burden of paperwork, which may be a significant obstacle to trade even when such trade is in principle free.

Question

1. From this case, what is the main difference between a free-trade area and a customs union?

2. Why are rules of origin needed for a free-trade area? How might they be protectionist?

You are the president of Campus Sweaters, Inc. Campus Sweaters manufacturers wool pullover v-neck sweaters of various sizes and colors. You are preparing the budgets for the first quarter of 2016 (January, February, and March). You have the following historical and projected sales in units:

It takes ten skeins of yarn to make one sweater. Each skein costs $1.30. Past experience shows you need to have enough sweaters on-hand to fill the next month and one-half of sales (approximately forty-five days). Also, you need enough yarn to manufacture the next month’s production.

You will have 12,000 sweaters in finished inventory and 80,000 skeins of yarn in raw materials inventory as of December 31, 2015. You purchased $90,000 of yarn in December that must be paid for in January. The Company incurred $7,500 of overhead cost during December 2015, and $13,500 of selling expenses in the last half of December. These also must be paid in January. The company policy is to pay prior month's charges on account on the tenth day of the following month unless otherwise designated.

Income Statements

A worker, using a knitting machine, can make five sweaters in an hour. The cost of direct labor per hour, including fringe, is $20.00. You incurred $13,000 of direct labor cost between December 16 and December 31, 2015 which will be paid on January 7, 2016. The manufacturing overhead rate is $5.00 per direct labor hour. All sweaters are sold wholesale to retail outlets at $30.00 each.

Salaries and wages are paid as follows: The pay period from the first to the fifteenth of the month is paid on the twenty-second day of each month; the pay period from the sixteenth to the thirty-first is paid on the seventh day of the following month.

Rent is paid in advance on the first day of each month. Fifty percent of the selling expenses are paid in the month incurred, and fifty percent in the following month. All manufacturing overhead and administrative costs are paid on the tenth day of the following month.

The cash in the bank on December 31, 2015 was forecast at $30,000. There were no outstanding borrowings. The company has a $500,000 line of credit at 12% per annum at the Old Rusty Bucket State Bank of Oreana. All borrowings, and any subsequent repayments must be made on the fifteenth day of the month. All loan takedowns must be repaid by December 31, 2016. Repayments can be made when extra cash is available, but are due on the fifteenth day of any month. The company has the policy to have at least $25,000 in the bank account at the end of each month even if they have to borrow it. However, more may be required depending on cash needs during the first week of the following month.

20% of the sales are collected in the month of sale. Seventy percent are collected in the next month, and five percent are collected in the third month.

>Use the information above to complete the following activities:

Step 01: Prepare a production budget for Campus Sweaters, Inc. for each of the following months: January, February, March 2016.

Step 02: Prepare a raw materials budget for each month.

Step 03: Prepare a raw materials budget in dollars for each month.

Step 04: Prepare a cost of goods manufactured schedule for each month.

Step 05: Prepare a cash budget for each month.

Partial answers provided:

The following relates to the month of January

Required production in units: 12,000

Required purchases of raw material in units 105,000

Required purchases of raw material in dollars: $136,500

Total Cost of Goods Manufactured: $216,000

Cash inflows $261,000

Cash outflows $238,000