Problem 5A-7 Cost Behavior; High-Low Method; Contribution Format Income Statement [LO5-10]
Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers. The company’s income statements for the three most recent months follow:
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Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 |
|||||||||||
| July | August | September | |||||||||
| Sales in units | 8,500 | 9,000 | 9,500 | ||||||||
| Sales | $ | 850,000 | $ | 900,000 | $ | 950,000 | |||||
| Cost of goods sold | 510,000 | 540,000 | 570,000 | ||||||||
| Gross margin | 340,000 | 360,000 | 380,000 | ||||||||
| Selling and administrative expenses: | |||||||||||
| Advertising expense | 37,000 | 37,000 | 37,000 | ||||||||
| Shipping expense | 110,000 | 115,600 | 121,200 | ||||||||
| Salaries and commissions | 155,000 | 162,800 | 170,600 | ||||||||
| Insurance expense | 10,500 | 10,500 | 10,500 | ||||||||
| Depreciation expense | 17,000 | 17,000 | 17,000 | ||||||||
| Total selling and administrative expenses | 329,500 | 342,900 | 356,300 | ||||||||
| Net operating income | $ | 10,500 | $ | 17,100 | $ | 23,700 | |||||
Required:
1. By analyzing the data from the company's income statements, classify each of its expenses (including cost of goods sold) as either variable, fixed, or mixed.
2. Using the high-low method, separate each mixed expense into variable and fixed elements. Express the variable and fixed portions of each mixed expense in the form Y = a + bX.
3. Redo the company’s income statement at the 9,500-unit level of activity using the contribution format.
In: Accounting
Exporting, Licensing, or FDI
A firm has three basic choices if it wants to sell its products in a foreign market—exporting, licensing, and foreign direct investment (FDI). The choice of the best option depends on characteristics of the product, the processes used to make these products, the control a firm needs to exercise over operations, and how the know-how of the firm might be protected. The best option is a strategic choice the international business manager must make, considering the interplay among these factors.
Internalization theories explore the limitations of exporting and licensing from both explanatory and business perspectives. These theories identify with some precision how the relative profitability of foreign direct investment, exporting, and licensing vary with circumstances. Other theories help explain the direction of FDI. The internalization theories help explain why firms prefer FDI to licensing or exporting.
Read the case below and answer the questions that follow.
Your firm manufactures a range of household goods and appliances. Over the years, your firm has developed proprietary processes, using environmentally-friendly chemicals that have given your firm a leadership position for "green" customers. Your products are competitively priced. The appliances and products you manufacture tend to be bulky and a bit heavy for their size.
You are interested in exploring international business options. You need to decide whether exporting, licensing, or foreign direct investment strategies would be the most appropriate for your firm. You want to maintain your competitive advantages, so you consider different strategic options by answering the questions below.
1. The effect of bulky or heavy products on transportation costs can make _______ an inappropriate strategy.
- Exporting
- Foreign Direct Investment
- Licensing
2. If your proprietary know-how of “green” processes is difficult to transfer to other firms, the most effective approach would be _____ .
- Exporting or Foreign Direct Investment
- Licensing or Exporting
- Foreign Direct Investment or Licensing
3. If your household goods can be efficiently produced through economies of scale, it would be a good idea to use a(n) _______ strategy.
- Exporting
- Licensing
- Foreign Direct Investment
4. If a firm's know-how, skills, and capabilities can be protected by contract, and if tight control over foreign operations is not vital to remain competitive, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be _________ .
- Foreign Direct Investment
- Exporting
- Licensing
5. If the firm is facing the threat of trade barriers such as high import tariffs or quotas and the firm has proprietary technology, the firm should consider ______.
- Licensing
- Foreign Direct Investment
- Exporting
In: Economics
The American Baker’s Association reports that annual sales of
bakery goods last year rose 15 percent, driven by a 50 percent
increase in the demand for bran muffins. Most of the increase was
attributed to a report that diets rich in bran help prevent certain
types of cancer. You are the manager of a bakery that produces and
packages gourmet bran muffins, and you currently sell bran muffins
in packages of three. However, as a result of this new report, a
typical consumer’s inverse demand for your bran muffins is now
P = 11 - 1.5Q.
If your cost of producing bran muffins is C(Q) =
3.5Q, determine the optimal number of bran muffins to sell
in a single package and the optimal package price.
Instruction: Enter your response for the optimal
package price rounded to two decimal places.
Optimal package size: units
Optimal package price: $
In: Economics
4. if temperatures fall, fewer persons will go on vacation is which type of relationship?
a. normative
b. positive
c. inverse
d. negative
6.the production possibilities curve shifts to the right
a. if prices of the 2 goods fall
b. if we get more money
c. if we get more resources
d. if we produce more of one good and less of the other good
8. if both the price and quantity of eggs rise, which is most likely to have happened?
a. demand for eggs shifts left
b. supply of eggs shift right
c. supply of eggs shifts left
d. demand for eggs shift right
9. if bread and butter are complements, if the price of butter rises
a. demand for butter shifts left
b. demand for bread shifts left
c. demand for bread shifts right
d. demand for butter shifts right
In: Economics
Assume that the United States has two sectors: the food sector has land as a specific factor and the manufacturing sector uses capital as a specific factor. Labour is mobile across sectors. Suppose that exceptionally good weather enables several states to enjoy ‘bumper’ crops that lead to an 8 percent decline in the price of food.
In: Economics
The American Baker’s Association reports that annual sales of bakery goods last year rose 15 percent, driven by a 50 percent increase in the demand for bran muffins. Most of the increase was attributed to a report that diets rich in bran help prevent certain types of cancer. You are the manager of a bakery that produces and packages gourmet bran muffins, and you currently sell bran muffins in packages of three. However, as a result of this new report, a typical consumer’s inverse demand for your bran muffins is now P = 12 - 1.5Q. If your cost of producing bran muffins is C(Q) = 1.5Q, determine the optimal number of bran muffins to sell in a single package and the optimal package price. Instruction: Enter your response for the optimal package price rounded to two decimal places.
Optimal package size: ___units
Optimal package price: $ ___
In: Economics
Aldi, a Germany-based global discount supermarket chain, opened two stores recently in New York City and it can offer prices that are 20% less than Walmart’s, which makes it an attractive place for city dwellers to shop. Aldi’s distinctive competence is produced by a number of factors. It operates with a business model that focuses on selling a limited number of groceries and household items in a small setting. Its typical stores are just 16% the size of a typical Wal-Mart store and carry just 1,500 or so items, compared to 100,000 items in a superstore. Most of its items are private brands, that is, goods that Aldi buys and packages itself. Which of the following concepts best describes the factors that contribute to Aldi’s distinctive competence?
| a. |
Situational analysis |
|
| b. |
Core capabilities |
|
| c. |
Strategic group |
|
| d. |
Strategic reference points |
In: Economics
1) A public good is described, in part, as a good
A) that has a marginal cost at or near zero.
B) that is essential to life.
C) which has all of these characteristics.
D) that may be depleted if demand is heavy.
2) The optimal output of a public good occurs where
A) the marginal benefit of the consumer who values the good most should equal the marginal cost of the good.
B) the sum of the marginal benefit of each consumer at a given output equals the marginal cost of the good.
C) the total cost of the good equals the cumulated benefits of all consumers.
D) the horizontal sum of the consumer benefits of the good should equal the marginal cost of producing the good.
3) Which is not a good method of providing public type goods by private means?
A) Private contracts
B) Clubs
C) Free markets with competing entrepreneurs
C) Funding by donation
Please answer all of the questions
In: Economics
In the previous units, we learned about basic accounting principles that generally apply to all types of firms. In this unit, we turn our attention to particular accounting concerns of merchant firms.
Because merchants are in many places among the most common type of business, and because there are special issues in accounting for merchandising operations, this subject merits special consideration.
No doubt all of you have merchants in the area where you live, you may often shop there, perhaps some of you may have even worked in a merchant shop. Think of a popular merchant near you. What type of merchandise do they stock? How do you think this merchant determines his or her cost of goods sold? Describe the method and "real" accounts.
250 words or more (must be original no copy paste)
In: Accounting
1. In macroeconomics, which of the following topics would most likely be studied?
a. Bob's budget
b. Nike's costs of production
c. The growth rate of the oil industry
d. Unemployment in Mexico
2. The GDP deflator:
a. measures price changes for everything produced in the country.
b. may include goods produced abroad.
c. is computed using the quantities that are consumed in the economy each year.
d. is the same as PPI.
3. The labor supply curve:
a. is made up of firms who want to hire workers at each given wage.
b. is made up of workers who want to work for firms at each given wage.
c. shows number of firms who are willing and able to hire workers at each given wage.
d. shows that the number of firms who want to hire workers decreases as the wage increases.
In: Economics