The chief cost accountant for Kenner Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning May 1 would be $210,000 and total direct labor costs would be $150,000. During May, the actual direct labor cost totaled $12,000 and factory overhead cost incurred totaled $17,100.

Required:

a. Explain why the marginal cost curve intersects the average total and variable cost curves at their

respective minimum values:

b. At what point on the ATC will a perfectly competitive firm always produce in the long run:

c. The supply curve for a perfectly competitive firm is the same as one of the cost curves based on a specific criterion, state both the curve and the criterion.

The cost accountant for River Rock Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning February 1 would be $130,000, and total direct labor costs would be $100,000. During February, the actual direct labor cost totaled $12,500, and factory overhead cost incurred totaled $16,750.

Required:

a. What is the predetermined factory overhead rate based on direct labor cost?

%

b. Journalize the entry to apply factory overhead to production for February 28. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for spaces or journal explanations. Every line on a journal page is used for debit or credit entries. Do not add explanations or skip a line between journal entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.

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JOURNAL

ACCOUNTING EQUATION

c. What is the February 28 balance of the account Factory Overhead-Blending Department?

d. Does the balance in part (C) represent over- or underapplied factory overhead?

A firm in a competitive market has the following cost structure:

              Output              Total Cost        

              0                         $5

              1                         $10                    

              2                         $12                    

              3                         $15                    

              4                         $24                    

              5                         $40

If the market price is $3, what will this firm do in the short run? show all your work

If price exceeds the minimum of average total cost, then comparing marginal revenue to marginal cost
(x) tells a firm the total amount of profit that it will generate.
(y) indicates how much additional profit is generated by the last unit of production.
(z) tells a firm whether it should increase output, decrease output or remain at the present level of output.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

A profit maximizing firm in a competitive market produces widgets. Suppose the market price for widgets increases to $15. At the profit maximizing (loss minimizing) quantity of 25,000 widgets, the ATC is equal to $18 and the AFC is equal to $5. Given these conditions the
(x) firm will continue its production of widgets in the short run since it is producing at its profit maximizing (loss minimizing) quantity and price exceeds average variable cost at that quantity.
(y) firm will experience a loss of $75,000 since total revenue is $375,000 and total cost is $450,000.
(z) the firm will continue to produce 25,000 widgets since it would lose $125,000 if it shut down and did not produce any widgets.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

A profit maximizing firm in a competitive market produces T-shirts. Suppose the market price for T-shirts decreases to $8. At the profit maximizing (loss minimizing) quantity of 40,000 T-shirts, the AVC is equal to $6 and the AFC is equal to $2. Given these conditions the
(x) firm will experience zero economic profits since price is equal to average total cost.
(y) the firm will continue to produce 40,000 T-shirts in the short run since it would earn an accounting profit at that level of production.
(z) firm will exit in the long run because firms must receive more than zero economic profit in the long run in order to stay in business.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

True and False

1) Average total cost and average variable cost are minimized at the same level of output.

2) When marginal cost is between average variable cost and average total cost, marginal cost is increasing.

3) Average total cost of producing 100 units of output is $5. If the marginal cost of producing the 101st unit is $4, then average total cost of 101 units is less than $5.

4) Average variable costs fall continuously as quantity of output rises.

A firm's total fixed cost (TFC) is $1,000 and unit variable cost (UVC) is $5. If market price of the product (P) is $10, what is the break-even quantity of sales?

Break-even quantity = TFC / (P - UVC) = __ units

Suppose a firm has average total cost = 54 and average variable cost = 24. If the firm's total fixed cost = 268, then how much output is the firm producing? Round to two decimal places.