Evian Corporation is a private corporation formed for the purpose of providing

the products and the services needed to irrigate farms, parks, commercial projects,

and private homes. It has a centrally located factory in a U.S. city that manufactures the

products it markets to retail outlets across the nation. It also maintains a division that

provides installation and warranty servicing in six metropolitan areas.

The mission of Evian is to manufacture quality parts that can be used for effective

irrigation projects that also conserve water. By that effort, the company hopes to satisfy

its customers, provide rapid and responsible service, and serve the community and

the employees who represent them in each community.

The company has been growing rapidly, so management is considering new ideas to

help the company continue its growth and maintain the high quality of its products.

Evian was founded by Will Winkman who is the company president and chief

executive officer (CEO). Working with him from the company’s inception was Will’s brother,

Ben, whose sprinkler designs and ideas about the installation of proper systems have been

a major basis of the company’s success. Ben is the vice president who oversees all aspects

of design and production in the company. The factory itself is managed by Todd Senter who hires his line managers to supervise the factory employees. The factory makes all of the parts for the irrigation systems. The purchasing department is managed by Hector Hines.

The installation and training division is overseen by vice president Henry Writer, who

supervises the managers of the six local installation operations. Each of these local managers

hires his or her own local service people. These service employees are trained by the home

office under Henry Writer’s direction because of the uniqueness of the company’s products.

There is a small Human Resources department under the direction of Sally Fenton,

a vice president who handles the employee paperwork, though hiring is actually performed

by the separate departments. Sam Totter is the vice president who heads the sales

and marketing area; he oversees 10 well-trained salespeople.

The accounting and finance division of the company is headed by Abe Headman, who

is the chief financial officer (CFO) and a company vice president; he is a member of the

Institute of Management Accountants and holds a certificate in management accounting.

He has a small staff of Certified Public Accountants, including a controller and a treasurer,

and a staff of accounting input operators who maintain the financial records.

A partial list of Evian’s accounts and their balances for the month of November 2012 follows.

Accounts Receivable                                                                $ 245,000

Advertising Expenses                                                                   54,000

Cash                                                                                                250,000

Depreciation—Factory Equipment                                              16,800

Depreciation—Office Equipment                                                  2,400

Direct Labor                                                                                     42,000

Factory Supplies Used                                                                   16,800

Factory Utilities                                                                               10,200

Finished Goods Inventory, November 30                                                67,700

Finished Goods Inventory, October 31                                       72,500

Indirect Labor                                                                                 48,000

Office Supplies Expense                                                                 1,600

Other Administrative Expenses                                                  72,000

Prepaid Expenses                                                                          41,250

Raw Materials Inventory, November 30                                   52,600

Raw Materials Inventory, October 31                                      38,300

Raw Materials Purchases                                                           184,500

Rent—Factory Equipment                                                          47,000

Repairs—Factory Equipment                                                       4,500

Salaries for the office workers                                               325,500

Sales                                                                                         1,225,000

Sales Commissions                                                                      40,500

Work In Process Inventory October 31                                    52,700

Work In Process Inventory, November 30                              41,000

Instructions for part 1

(a) Based on the information given, construct an organizational chart of Evian

Corporation. (see illustration 1-2 in text)

(b) A list of accounts and their values are given above. From this information, prepare a cost of goods manufactured schedule, a cost of goods sold schedule, an income statement, and the current assets section of the balance sheet for Evian Corporation for the month of November 2012. (see illustrations in the text)

Part 2

Evian has two major public-park projects to provide with comprehensive

irrigation in one of its service locations this month. Job J57 and Job K52 involve 15 acres

of landscaped terrain which will require special-order sprinkler heads to meet the specifications

of the project. Using a job cost system to produce these parts, the following

events occurred during December 2012:

Raw materials were requisitioned from the company’s inventory on December 2 for

$4,995; on December 8 for $960; and on December 14 for $3,306. In each instance, two-

thirds (2/3) of these materials were for J57 and the rest for K52.

Six time tickets were turned in for these two projects for a total amount of 18 hours

of work. All the workers were paid $16.50 per hour. The time tickets were dated December 3,

December 9, and December 15. On each of those days, 6 labor hours were spent on these

jobs, two-thirds (2/3) for J57 and the rest for K52.

The predetermined overhead rate is based on machine hours. The expected machine

hour use for the year is 2,112 hours, and the anticipated overhead costs are $842,688

for the year. The machine were used by workers on projects K52 and J57 on December 3, 9,

and 15. Six machine hours were used for project K52 (2 each day), and 8.5 machine hours

were used for project J57 (2.5 the first day and 3 each of the other days). Both of these

special orders were completed on December 15, producing 235 sprinkler heads for J57

and 145 sprinkler heads for K52.

Additional job order activities during this period of time included:

Dec. 1 Purchased raw materials from Durbin Supply Company on account for $53,200.

Dec. 2 Issued $42,000 of direct materials from the company’s inventory to jobs other than K52 and J57 and $3,000 of indirect materials.

Dec. 12 Paid Evian’s factory salaries and wages in the amount of $67,000.

Dec. 13 Paid the factory’s water bill of $3,000.

Dec. 18 Transferred $50,000 of costs from other completed jobs to finished goods.

Dec. 21 Paid the factory’s electric bill of $12,000 for factory.

Instructions for part 2

(a) Set up the job cost sheets for Job No. J57 and Job No. K52. Determine the total cost for each manufacturing special order for these jobs. (Round unit cost to nearest cent.)

(b) Journalize the activities from these job cost sheets in the general journal. Also journalize the other costs that occurred during this period of time.

(c) Assuming that Manufacturing Overhead has a credit balance of $3,400, determine whether overhead has been under/over applied and make the adjusting entry.

Part 3

Because most of the parts for its irrigation systems are standard, Evian handles

the majority of its manufacturing as a process cost system. There are multiple process

departments. Three of these departments are the Molding, Cutting, and Welding departments.

All items eventually end up in the Package department which prepares items for

sale in kits or individually.

The following information is available for the Molding department for January.

Work in process beginning: 22,000 units , Total costs in beginning work in process $252,854

Costs in work in process inventory:   Materials $168,020, Labor 67,564, Overhead 17,270

Units started into production in January 60,000

Units completed and transferred-out in January 58,000

Costs added to production: Materials $264,940, Labor 376,188, Overhead 60,578 =Total costs added into production in January $701,706

Work in process ending:

Units in process 24,000

Stage of completion for materials 100%

Stage of completion for labor and overhead 30%

Instructions for part 3

(a) Prepare a production cost report for Evian using the weighted-average method.

Part 4

Direct labor or machine hours may not be the appropriate cost driver for overhead

in all areas of manufacturing due to the complexities of many manufacturing

processes. Many companies use activity-based costing (ABC) which uses multiple drivers

(items that consume resources) rather than just one driver to apply overhead to their

activities. With ABC, a company can use a cost driver that has a direct cause/effect relationship

in its applied overhead costs.

Evian looked into ABC as a method of costing because of the variety of items it

produces and the many different activities in which it is involved. The activities listed

below are a sample of possible cost pools for Evian.

Assembling

Payroll

Billing

Plant supervision

Digging trenches

Purchasing materials

Machine maintenance

Selling

Machine setups

Testing

Molding

Welding

Packaging

Instructions for part 4

(a) For each of these cost pools, what would be the likely activity cost driver?

(b) Using the following information, determine the overhead rates and the actual cost assigned for each of the activity cost pools in a possible ABC system for Evian.

EVIAN CORPORATION

Expected

Use of                              Actual

Estimated           Cost Drivers                             Use of

Activity Cost Pools                        Cost Drivers      Overhead           per Activity                              Drivers

Irrigation installation                    Labor cost         $1,999,500               12,900                                     12,941

Machining (all machine use)       Machine hours 1,670,400         33,408,000                              33,409,000

Customer orders                            # of orders               30,636                    2,553                                       2,520

Shipping                                          none (direct)                    N/A traced directly

Design                                              Cost per design             820                       10                                           7

Selling                                              Number of calls       372,300              21,900                                     22,100

(d) (1) The results of ABC can provide a more accurate picture of costs. Discuss the value of Evian using this system to determine overhead costs.

(2) How might using ABC affect decision making at Evian?

Salmone Company reported the following purchases and sales for its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using LIFO.

Date	Activities	Units Acquired at Cost	Units Sold at Retail
May 1	Beginning Inventory	150 units @ $10.00
5	Purchase	220 units @ $12.00
10	Sales		140 units @ $20.00
15	Purchase	100 units @ $13.00
24	Sales		150 units @ $21.00

$2,260

$3,180

$1,860

$3,580

$2,100

Situation for Analysis: Grayslake Novelty produces and sells a small novelty item through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units. The income statement for Grayslake Novelty for last year is shown below:

Sales	$992,000
Less: Variable Expenses	545,600
Contribution Margin	446,400
Less: Fixed Costs	180,000
Net Operating Income	$266,400

While the company has been profitable, as shown in the above income statement, sales began falling near the end of last year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making decisions about the company’s strategy for this product. These alternatives should be evaluated individually as stated. You are free and encouraged to offer your own alternative based on any of the parameters given in the data.   

Required:

a. While the company is currently profitable, the president wants to know the contribution margin and the breakeven in both units and dollars using last year’s level of sales. Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

b. One of the possible strategies (Alt 1) is to reduce the current price by 8%. Using last year’s level of sales, what is the new contribution margin and break-even in units and dollars based on the price reduction? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

c. A second strategy (Alt 2) is to reduce the current variable cost by 0.20 per unit. The company has identified available efficiencies that can be implemented without any additional changes to the current cost. What is the new contribution margin and break-even in units and dollars based on the variable cost reduction of 0.20 per unit? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

d. A third strategy (Alt3) is to decrease the current price by 8% and reduce the variable cost per unit by 0.20. What is the new contribution margin and break-even in units and dollars based on making both changes? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

e. A fourth strategy (Alt 4) under consideration is to invest in more automated equipment for the manufacturing process. This investment will reduce variable costs by 0.65 per unit, primarily reducing the direct labor. At the same time, this will increase the fixed costs by $50,000. What is the new contribution margin and break-even in units and dollars based on this change in operating structure? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

f. A final strategy (Alt 5) is to change the current structure for the company’s sales person. The current fixed cost includes the salary of Grayslake’s one sales person at $60,000 per year. The company’s marketing study suggests that sales could be increased by 20% if the company hired an additional sales person; paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold. What is the new contribution margin and break-even in units and dollars based on this change? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales as the starting point for this change.

This is a writing question:

Instructions:

Write a business memo addressed to the president recommending the best course of action based on your analysis. In your memo, discuss changes in break-even points, and impacts to the operating leverage. Including a table summarizing your findings would be appropriate. The company’s long-range plan is to grow sales to 250,000 units in the next two to three years. In your memo, summarize the advantages and disadvantages of each of the alternatives. Critically evaluate the alternatives based on current market conditions and any impact each alternative may have on the long-range plan.

Clearly state your recommended course of action explaining why your recommendation is the best for the company. Your memo should be at least one page, but no longer than two full pages. You should also attach an Excel spreadsheet that documents all your calculations. The calculations supporting your data and analysis must be included.

Situation for Analysis: Grayslake Novelty produces and sells a small novelty item through tourist shops in Chicago and other northern Illinois locations. Last year the company sold 198,400 units. The income statement for Grayslake Novelty for last year is shown below:

Sales	$992,000
Less: Variable Expenses	545,600
Contribution Margin	446,400
Less: Fixed Costs	180,000
Net Operating Income	$266,400

While the company has been profitable, as shown in the above income statement, sales began falling near the end of last year and have continued to decline this year. There is concern that new competitors are beginning to take market share from Grayslake Novelty. As a result, Sarah Burroughs, the company president, has asked you to provide some information to assist her in making decisions about the company’s strategy for this product. These alternatives should be evaluated individually as stated. You are free to offer your own alternative based on any of the parameters given in the data.

Required:

a. While the company is currently profitable, the president wants to know the contribution margin and the breakeven in both units and dollars using last year’s level of sales. Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

b. One of the possible strategies (Alt 1) is to reduce the current price by 8%. Using last year’s level of sales, what is the new contribution margin and break-even in units and dollars based on the price reduction? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

c. A second strategy (Alt 2) is to reduce the current variable cost by 0.20 per unit. The company has identified available efficiencies that can be implemented without any additional changes to the current cost. What is the new contribution margin and break-even in units and dollars based on the variable cost reduction of 0.20 per unit? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

d. A third strategy (Alt3) is to decrease the current price by 8% and reduce the variable cost per unit by 0.20. What is the new contribution margin and break-even in units and dollars based on making both changes? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

e. A fourth strategy (Alt 4) under consideration is to invest in more automated equipment for the manufacturing process. This investment will reduce variable costs by 0.65 per unit, primarily reducing the direct labor. At the same time, this will increase the fixed costs by $50,000. What is the new contribution margin and break-even in units and dollars based on this change in operating structure? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales.

f. A final strategy (Alt 5) is to change the current structure for the company’s sales person. The current fixed cost includes the salary of Grayslake’s one sales person at $60,000 per year. The company’s marketing study suggests that sales could be increased by 20% if the company hired an additional sales person; paid both individuals $40,000 fixed salaries; and a 0.25 commission per unit sold. What is the new contribution margin and break-even in units and dollars based on this change? Additionally, compute the margin of safety, margin of safety ratio, and degree of operating leverage based on last year’s sales as the starting point for this change.

Submission Instructions:

Write a business memo (format is in the second document of this assignment) addressed to the president recommending the best course of action based on your analysis. In your memo, discuss changes in break-even points, and impacts to the operating leverage. Including a table summarizing your findings would be appropriate. The company’s long-range plan is to grow sales to 250,000 units in the next two to three years. In your memo, summarize the advantages and disadvantages of each of the alternatives. Critically evaluate the alternatives based on current market conditions and any impact each alternative may have on the long-range plan.

Clearly state your recommended course of action explaining why your recommendation is the best for the company. Your memo should be at least one page, but no longer than two full pages. You may also attach an Excel spreadsheet that shows all your calculations or you may embed your computations into the memo using tables. The calculations supporting your data and analysis must be included.

Match each of the following activities with the appropriate quality cost classification (a–d).

Group of answer choices

Disposing of scrap

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

Recalling defective products

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

Performing warranty work

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

Testing products

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

Controlling vendor quality

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

Processing returned merchandise

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

Maintaining equipment

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

Training operators  

      [ Choose ]            Appraisal cost            External failure cost            Internal failure cost            Prevention cost      

10. Suppose the development of new drought-resistant hybrid seed corn leads to a 50% increase in the average yield per acre without increasing the cost to the farmers who use the new technology. If the conditions in the corn industry are approximated by the price-taker model, which of the following will be likely to occur? (More than one answer is correct, list all correct answers) a. The market supply of corn will increase. b. The supply of soybeans (a close substitute for corn) will decrease. c. The price of corn will fall and the quantity demanded for corn will increase. d. The demand for corn will increase. e. The price of soybeans (a close substitute for corn) will decrease.

12. Assume that "PC Clone" computer makers are price takers operating in an increasing cost industry. If demand increases, initially the PC manufacturers will be able to make economic profits. What is likely to happen to these profits with the passage of time? (There is more than one correct answer). a. They will persist as long as the demand for personal computers is high. b. As computer makers compete for inputs (chips, disk drives, engineers, etc.), they will bid up input prices, which will increase costs and reduce their profitability. c. Once consumers know that the computer makers are earning profits, they will reduce their purchases, which will lead to a reduction in demand and a lower market price. d. New PC manufacturers will enter the industry over time, which will lead to an increase in supply and a reduction in computer prices until the profits are eliminated.

13. Which of the following statements is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets? (Note for this problem, there is more than one correct answer). a. P= MC for price-taker, and P > MC for competitive price-searcher markets. b. P = MC in both price-taker and competitive price-searcher markets. c. P = ATC in both price-taker and competitive price-searcher markets, and at a point where ATC is at a minimum for price- taker markets but not at a minimum for price-searcher markets. d. Economic profits are zero for both price-taker and competitive price-searcher markets. e. Total Revenue = Total Cost for both competitive price-taker and price-searcher markets.

14. Which of the following statements about price discrimination is correct (more than one answer is correct)? a. A price discriminating firm will want to charge a higher price to the consumer group with the more elastic demand. b. A firm can usually increase its profits by price discriminating rather than charging the same price to all customers. c. Some consumers will pay a higher price when a firm is a price discriminator than would be the case if all customers were charged the same price. d. Compared to a single-price strategy, a firm that engages in price discrimination usually produces and sells a larger output. e. For price discrimination to be successful, firms generally have to be able to prevent re-sale of their products and control resentment.

15. Which of the following is a true statement about the difference between a price-taker firm and a competitive price-searcher firm in the long run (more than one answer is correct)? a. Both will sell their products at a price equal to average total cost, but only the price-searcher will produce at minimum average total cost. b. Both will sell their products at a price equal to marginal cost, and only the competitive price searcher will produce at minimum average total cost. c. Only the price-taker will sell its product at a price equal to marginal cost. d. Only the competitive price searcher will sell its product at a price equal to marginal cost. e. Both will sell their products at a price equal to average total cost, but only the price-taker will produce at minimum average total cost.

16. In some industries where firms experience declining average total costs over the full range of output that consumers are willing to buy (more than one answer is correct): a. a larger firm will very likely have lower per-unit costs. b. many rival firms will tend to emerge from the competitive process. c. a single large firm will likely develop, and it will have cost advantages that may protect it from potential rivals. d. a single large firm will develop and it will buy out any smaller rival firms because the small firms can produce at a lower per-unit cost. e. smaller firms will likely have per-unit costs that are similar to large firms.

17. In sparsely populated areas of the western United States, physicians often have some local monopoly power since the nearest doctor may be a hundred miles (or more) away. Physicians confronting this circumstance may be able to practice price discrimination, for example, by charging richer families more than poorer ones for the same services. If one such physician is willing to stay in the area only if he or she can earn at least $150,000 per year, and if price discrimination permits him or her do so, then economic reasoning suggests that such price discrimination would most likely (more than one answer is correct): a. make residents of the area worse off with regard to the purchase of physician services. b. make residents of the area better off with regard to the purchase of physician services. c. increase the number of physicians practicing in such sparsely populated areas. d. increase the options available to both the rich and poor families in the community.

19. Given that the short-run cost and demand conditions shown above for a competitive price-searcher firm are representative for all firms in the industry, which statements accurately describe this firm and industry (more than one answer is correct)? a. The firm’s Price will exceed ATC and it will be able to make short-run economic profits. b. The firms will face competition from new entrants into the industry, causing this firm's demand to decline until zero economic profits are restored. c. The firms will face competition from new entrants into the industry, causing this firm's demand to increase until it earns positive economic profits. d. The firm will see some of its competitors exit from the industry, causing this firm's demand to increase until zero economic profits are restored. e. The firm’s Total Revenue (TR) will exceed its Total Costs (TC) in the short-run.

20. If the government grants a single firm the patent right (monopoly) for the production of a good, such as a new cancer drug, then compared to the competitive outcome for such a good: a. the price of the cancer drug will be higher, less of the cancer drug will be produced, and the firm will earn positive profits. b. the price of the cancer drug will be lower, less of the cancer drug will be produced, and the firm may be able to earn positive economic profits. c. the price of the cancer drug will be higher, more of the cancer drug will be produced, and the firm may be able to earn positive economic profits. d. the price of the cancer drug will be higher, less of the cancer drug will be produced, and the firm will earn zero economic profits. e. none of the above

21. Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency? (More than one answer is correct.) a. The output of the monopolist will be too small and the price too high, compared to ideal market efficiency. b. The output of the monopolist will be too large and the price too high, compared to ideal market efficiency. c. The output of the monopolist will be too small and the price too low, compared to ideal market efficiency. d. The monopolist’s price will be too high, but the impact of monopoly on output is indeterminate. e. The unregulated monopolist will be in a position to charge a price greater than its ATC of production in the long-run.

22. Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC) and that the market price is expected to rise at least to ATC in the near future. In the short run, a firm that is a price-taker would: a. immediately shut down and get out of the industry. b. continue to produce a quantity of output such that its marginal revenue equals marginal cost. c. shut down temporarily, in hopes of restarting in the near future. d. cut price and expand output in hopes of achieving economies of scale. e. None of the above.

23. Even though a cartel is often profitable for its members, cartel arrangements contain the seeds of their own disintegration because (more than one answer is correct): a. a price maintained above each cartel member's average variable cost provides each member with an incentive to offer secret price reductions to attract additional customers. b. the profits earned by cartel members will induce and attract new firms to enter the industry. c. cartel members will attempt to garner more of the total profit for themselves by cheating on their agreement with other members. d. cheating on cartel agreements by individual members may be difficult to detect and enforce. e. the demand for the products of cartels is inherently unstable relative to the demand for the products of non-cartel industries.

24. Suppose the airline industry is an oligopolistic market with significant barriers to entry. If this is true, we would expect that (more than one answer is correct): a. each airline will strategically set its own price and output by considering how other airlines might respond. b. if the number of airlines declined because of a series of mergers between major airlines, then collusive behavior in the industry leading to higher prices would be more likely. c. the airfares being charged will be greater than what would be charged in a competitive price-taker market with no entry barriers but less than what would be charged by a pure monopolist. d. the firms in the industry will not attempt to maximize profit.

26. People can travel within Washington, D.C., via the Metro subway system or by taxicabs. Suppose that taxi fares (prices) remain the same, while subway fares (prices) increase for the Metro system. How will the total revenue from subway and taxi travel be affected by the increase in subway fares? The total revenue (more than one answer is correct): a. from taxi fares will increase, and revenue from subway fares will increase, but only if demand for the subway is inelastic. b. from taxi fares will increase, and revenue from subway fares will increase, but only if demand is elastic. c. from subway fares will decrease, and revenue from taxi fares might either increase or decrease. d. from taxi fares will decrease, and revenue from subway fares might either increase or decrease. e. from taxi fares will increase, and revenue from subway fares might either increase or decrease.

27. Mexican Hut sells tacos and competes with its main rival Burger Queen, which sells hamburgers. If rising corn prices unexpectedly increase the cost of taco shells for Mexican Hut, which of the following statements are correct in the long run when market equilibrium is restored? (More than one answer is correct. Hint: Use graphs to help answer this question) a. The supply of Mexican Huts tacos will decrease, their price will increase; the demand for Burger Queen’s hamburgers will then increase, and their price will increase. b. The supply of Mexican Hut’s tacos will decrease, their price will increase and the quantity demanded for tacos will decrease. c. The supply of Mexican Hut’s tacos will decrease, while the quantity supplied of Burger Queen’s hamburgers will increase as the price of hamburgers increases; d. The price of tacos will rise and the quantity demanded for tacos will decrease; the price of hamburgers will increase as the supply of hamburgers increases; e. The price of burgers will rise, the demand for tacos will fall, and the quantity of tacos supplied will decrease.

29. If the price of sandals is fixed by law below the market-clearing price (Note: More than one answer is correct): a. a shortage of sandals will result. b. sandal inventories at shoe stores will be smaller than when the market price prevails. c. the quantity of sandals purchased will be less than the quantity purchased at the market price. d. the quantity of sandals supplied will be greater than the quantity supplied at the market price. e. the quantity of sandals demanded will be greater than the quantity supplied.

32. Economic analysis suggests that patent laws that can often be used to limit the entry of potential competitors into an industry (more than one answer is correct): a. redistribute income from consumers to business decision makers without affecting the allocation of resources. b. may be a source of business monopoly power, but they may also encourage innovation and the development of cost- reducing production techniques in the long run. c. encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly. d. help inventors at the expense of consumers in the short run. e. help consumers at the expense of inventors in the long run.

HarLeY-DaViDSOn Founded in 1903 in Milwaukee, Wisconsin, Harley-Davidson has twice narrowly escaped bankruptcy but is today one of the most recognized motor vehicle brands in the world. In dire financial straits in the 1980s, Harley licensed its name to such ill-advised ventures as cigarettes and wine coolers. Although consumers loved the brand, sales were depressed by product-quality problems, so Harley began its return to greatness by improving manufacturing processes. It also developed a strong brand community in the form of an inclusive owners’ club, called the Harley Owners Group (H.O.G.), which sponsors bike rallies, charity rides, and other motorcycle events and now numbers more than 1 million members in some 1,400 chapters. H.O.G. benefits include a magazine called Hog Tales, a touring handbook, emergency road service, a specially designed insurance program, theft reward service, discount hotel rates, and a Fly & Ride program enabling members to rent Harleys on vacation. The company also maintains an extensive Web site devoted to H.O.G. with information about club chapters and events and a special members-only section. Harley is active with social media too and boasts more than 3.3 million Facebook fans. One fan inspired a digital video and Twitter campaign dubbed E Pluribus Unum—“Out of Many, One”—where Harley riders from all walks of life show their diversity and their pride in their bikes. Companies large and small can build brand communities. When New York’s Signature Theatre Company built a new 70,000-square-foot facility for its shows, it made sure there was a central hub where casts, crew, playwrights, and audiences for all productions could mingle and interact.65 Online, marketers can tap into social media such as Facebook, Twitter, and blogs or create their own online community. Members can recommend products, share reviews, create lists of recommendations and favorites, or socialize together online. Online forums can be especially helpful in a business-to-business setting for professional development and feedback opportunities. The Kodak Grow Your Biz blog is a place for members to learn and share insights about how Kodak products, services, and technologies can improve important company or industry business performance.66 The Pitney Bowes User Forum is a place for members to discuss issues related to Pitney Bowes equipment and to mailing and marketing in general. Members often answer each other’s business questions, though Pitney Bowes customer service representatives are available for any particularly difficult support questions.67 maximizing the benefits of branD Communities A strong brand community results in a more loyal, committed customer base. One study showed that a multichannel retailer of books, CDs, and DVDs enjoyed long-term incremental revenue of 19 percent from customers—what the authors called “social dollars”— after customers joined an online brand community. The more “connected” a member of the community was, the greater the likelihood he or she would spend more.68 A brand community can be a constant source of inspiration and feedback for product improvements or innovations. The activities and advocacy of members of a brand community can also substitute to some degree for activities the firm would otherwise have to engage in, creating greater marketing effectiveness and efficiency as a result.69To better understand how brand communities work, one comprehensive study examined communities around brands as diverse as StriVectin cosmeceutical, BMW Mini auto, Jones soda, Tom Petty & the Heartbreakers rock and roll band, and Garmin GPS devices. Using multiple research methods such as “netnographic” research with online forums, participant and naturalistic observation of community activities, and in-depth interviews with community members, the researchers found 12 value creation practices taking place. They divided them into four categories—social networking, community engagement, impression management, and brand use—summarized in Table 5.5. Building a positive, productive brand community requires careful thought and implementation.70 One set of researchers offers these recommendations for making online brand communities more effective:71

1. Enhance the timeliness of information exchanged. Set appointed times for topic discussion; give rewards for timely, helpful responses; increase access points to the community

. 2. Enhance the relevance of information posted. Keep the focus on topic; divide the forum into categories; encourage users to preselect interests.

3. Extend the conversation. Make it easier for users to express themselves; don’t set limits on length of responses; allow user evaluation of the relevance of posts.

4. Increase the frequency of information exchanged. Launch contests; use familiar social networking tools; create special opportunities for visitors; acknowledge helpful members.

BMI as a vital sign. Insured that all patients in local community clinics had their height and weight measured at each visit through provider education and training and referral system development (reached over 7,500 clinic patients). ? Breastfeeding policy. Implemented policies to promote breastfeeding in clinics, educated patients and clinic employees on the value of breastfeeding, and built capacity for more certified lactation specialists. Documented rates of exclusive breastfeeding from 7.7% in January 2005 to 20.2% in November 2009 (reached 900 staff and patients). ? School menu standards. Improved school meal/menu program during and after school to ensure meal compliance with nutritional standards and needs. Improved menu offerings and ingredients (e.g., added salad bars, changed to baked fries, whole wheat flour, etc). Expanded Universal Breakfast to five schools. Monitored compliance of policies for healthy fundraising, healthy vending, and alternative classroom rewards and incentives (reached over 7,700 students). ? PE standards. Implemented, at five elementary schools, the California standards-based physical activity curriculum and Game Days during school (reached 3,450 students). ? Worksite wellness. Worked with employers to adopt and implement worksite HEAL policies in the workplace; all county departments now have a worksite wellness coordinator. Received the worksite wellness bronze award for its accomplishments. (reached 4,000 employees in several worksites). ? Corner market produce. Implemented a grocery store Healthy Produce Basket project in neighborhood stores. Provided owners with educational materials and free produce in a basket and worked to identify ways to maintain the flow of produce. Some stores began purchasing from distributers. Worked with youth to provide free produce deliveries to these stores from unsold farmers’ market products to assist stores build a customer base for fresh fruits and vegetables (reached 4200 residents). ? Resident gardens. Local women from the Healthy Birth Outcome (HBO) Project grew produce in their backyards. Piloted selling excess produce at a stand in the park with the intention of creating a farmer’s market (reached 160 residents). ? Farmer's market. Organized and developed a four-month annual certified farmers’ market in West Modesto. Worked with Heifer International, a local organization that donated farm land and staff, and Project Uplift, a youth development project, to train youth to grow and sell organic produce with other vendors (reached 625 residents). ? After-school physical activity. Implemented a number of programs to increase the amount of exercise students get in afterschool programs, including the SPARK curriculum (offered daily), Powerplay (offered three times per week), and “Walk It Out” (offered three times per week). Increased daily after-school activity time from 15% to 45% (reached 1800 students). ? Walking school bus. Created a walking school bus at one school that increased the number of students walking approximately one half mile to school each day. Increased safety awareness through adult supervision, influenced traffic abatement, and reduced student tardiness (75 students walking daily). ? BMI counseling. Developed a routine counseling system to promote weight reduction among patients identified as being overweight in health care clinics (reached 140 patients). ? Youth awareness. Promoted student awareness of the importance of healthy eating and physical activity through the Educational Theater Program, Walk to School assemblies and other events (reached 2080 students). ? Community awareness of safe physical activity programs. Developed healthy messages for partners to insert into flyers, newsletters, bus ads, billboards, articles in local newspaper, and events (reached 17,000 residents). ? Worksite wellness promotion. Developed and implemented worksite wellness programs to decrease consumption of unhealthy foods and beverages and promote physical activity among employees. Received a state worksite wellness bronze award for its accomplishments (reached 4,000 employees in several worksites). After reading the description CAREFULLY, please organize the various objectives employed in this evaluation into the "bands" of the social-ecological model. You should briefly indicate WHY you feel these strategies fall within the specific categories of the model. From the list of objectives you have placed in the model, pick one objective from EACH of the "bands" of the model. Describe how you would evaluate that objective. Would you use formative or summative methods (and why)? What types of study design (qualitative or quantitative) and specific techniques would you use to collect the data in order to evaluate that objective? What sort of sampling might you use for each data collection approach? Remember to argue for your choices!