Answer:
B
Explanation:
Patents are a right granted to an inventor to exclusively sell a product for a specific period of time usually for 20 years. During this period, others are prevented from making, using, or selling the invention.
Types of patents include:
1. utility patents
2. design patents
3. plant patent
Because Wesley's country does not have a strong patent law, the best option for Wesley is to move to a country with strong patent laws so his invention can be protected.
What would cause an economy to be producing at a point inside its production possibilities curve?
Answer:
The correct answer is: the lack of effectivization in the use of their resources inside the economy to obtain the best outcomes possibles.
Explanation:
To begin with, in the economic theory the term known as production possibilities curve refers to a strategic tool, a graphic that can be used by the professionals of the area in order to understand how the economy is working with its resources, if the economy is producing well enough then the economy should be getting great development results and the point inside the graphic should be in the limit of the curve, but if the point is in the inside of the curve then that means that the resources inside that particulary economy are not being fully use to their best in order to obtain the best outcome so that will explain that there is still possibility to expand the production according to the theory of the tool itself.
Manero Company included the following information in its annual report: 20X3 20X2 20X1 Sales$178,400 $162,500 $155,500 Cost of goods sold 115,000 102,500 100,000 Operating expenses 50,000 50,000 45,000 Operating income 13,400 10,000 10,500 In comparison to year 20X2, the increase in operating income of 20X3 was primarily caused by the effect of margin increase of (ignore taxes):Multiple Choice$2,422.$3,400.$978.$1,194.
Answer:
Manero Company
In comparison to year 20X2, the increase in operating income of 20X3 was primarily caused by the effect of margin increase of
= $3,400.
Explanation:
a) Data and Calculations:
20X3 20X2 20X1
Sales $178,400 $162,500 $155,500
Cost of goods sold 115,000 102,500 100,000
Operating expenses 50,000 50,000 45,000
Operating income 13,400 10,000 10,500
Increase in operating income of 20X3 compared to 20X2 is $3,400 ($13,400 - $10,000)
This increase represents 34% increase in the margin of 20X3 when compared to 20X2. The increase resulted from increased sales revenue.
You own a portfolio that has a total value of $185,000 and it is invested in Stock D with a beta of .91 and Stock E with a beta of 1.33. The beta of your portfolio is equal to the market beta. What is the dollar amount of your investment in Stock D
Answer:
$145,357.14
Explanation:
The computation of the dollar amount of your investment in Stock D is shown below:
Let us assume the investment in D be $x
So,
The investment in E is ($185,000 - x)
As we know that
Portfolio beta= Respective beta × Respective investment weight
1 = (x ÷ 185,000 × 0.91 ) +(185,000 - x) ÷ 185,000 × 1.33
Here
Beta of market = 1
And, the Beta of risk-free assets=0
(1 × 185000) = 0.91x + 246050 - 1.33x
185,000 = 0.91x + 246050 - 1.33x
x = (246050 - 185,000) ÷ (1.33 - 0.91)
= $145,357.14
Assume personal tax rates are lower than corporate tax rates. From a tax-paying shareholder point of view, how should a firm spend its excess cash once it has funded all positive net present value projects
Answer: e. repurchase shares
Explanation:
If the personal tax rates are lower than corporate tax rates then the company should engage in an activity that would put money into the pockets of shareholders such that they would take advantage of the lower personal tax rates.
The best way to do that would be a share repurchase. The company would probably buy at above market rates which would give shareholders capital gain and they wouldn't have to pay much taxes on it as personal rates are lower.
Slapshot Company makes ice hockey sticks. Last week, direct materials (wood, paint, Kevlar, and resin) costing $26,000 were put into production. Direct labor of $20,000 (10 workers x 100 hours x $20 per hour) was incurred. Manufacturing overhead equaled $52,000. By the end of the week, the company had manufactured 2,000 hockey stick. Explain how?
Answer:
Slapshot Company
The total production is $98,000 with a unit cost of $49 per hockey stick.
The selling price per unit should be above $49 when marked-up.
Explanation:
a) Data and Calculations:
Direct materials (wood, paint, Kevlar, and resin) $26,000
Direct labor (10 workers x 100 hours x $20 per hour) 20,000
Manufacturing overhead equaled 52,000
Total production costs = $98,000
Production of hockey stick = 2,000 units
Unit cost of hockey stick = $49 ($98,000/2,000)
The financial statements of the Sunland Company reports net sales of $828000 and accounts receivable of $79200 and $43200 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days
Answer:
See below
Explanation:
Given the above information, the average collection period in days is computed as
= Average balance of account receivables / Net credit sales × 365
Average balance of account receivables = ($79,200 + $43,200) / 2
= $61,200
Net credit sales = $828,000
= $61,200 / $828,000 × 365
= 26.97 days
= 27 days
Hence the average collection period in days is 27 days
Wright Machinery Corporation manufactures automobile engines for major automobile producers. The engines sell for $940 per engine. In addition, customers have the option to purchase a service-type warranty for $70 per engine that protects against any defects for a period of 5 years. During 2019, Wright sold 7,000 engines to National Motors. National Motors purchased warranties on all of the engines purchased. During 2019, Wright repaired defective motors at a cost of $93,400. Prepare the necessary journal entries to record:
1. the sale of engines and service warranty on account during 2016 (one entry).
2. the warranty costs paid during 2016
3. the warranty revenue earned in 2016.
Additional Instructions
Model your entries after the Service-Type Warranties example in your textbook.
For grading purposes, use December 31 to record a summary transaction for entries that would have been made during the year.
Answer: See explanation
Explanation:
The journal entry is illustrated below:
Dr Cash $7070000
Cr Sales revenue = $940 × 7000 = $6580000
Cr Unearned warranty revenue = $70 × 7000 = $490000
(To record sale of engines and service warranty on account)
Dr Warranty expense $93,400
Cr Cash $93,400
(To record warranty costs paid)
Dr Unearned warranty revenue = $490000/5 = $98000
Cr Warranty revenue $98000
(To record warranty revenue earned)
You have accepted a job as the president and CEO of a large transportation conglomerate. Over the years, the conglomerate has acquired a number of unrelated divisions. Your first action as CEO is to complete a strategic plan.
Business Projected Growth Rate Current market share
Shipping Low 1%
Cargo inspection High 5%
Railroad loading Low 75%
Freight forwarding High 70%
Which of the following divisions would you take profits from and continue to run?
a. Railroad loading
b. Shipping
c. Freight forwarding
d. Cargo inspection
Answer: a. Railroad loading
Explanation:
This question relates to the BCG matrix which allows a company with multiple divisions to know how to deal with its various divisions based on their growth rate and market share.
The question specifically relates to a matrix called "Cash cows". Cash cows are divisions that have a significant market share but a low growth rate. These divisions are stable and bring more money into the company than they cost to run.
This allows us to take profits from them and invest in other. The Railroad loading controls a significant market share of 75% but has a low growth rate so is a Cash cow.
For each of the following (1) identify the type of account as an asset, liability, equity, revenue, or expense, (2) identify the normal balance of the account, and (3) select debit (Dr.) or credit (Cr.) to identify the kind of entry that would increase the account balance
Account Type of Account Normal Balance Increase (Dr. or Cr.)
a. Fees Earned
b. Equipment
c. Notes Payable
d. Owner Capital
e. Cash
f. Legal Expense
g. Prepaid Insurance
h. Land
i. Accounts Receivable
j. Owner Withdrawals
k. License Fee Revenue
l. Unearned Revenue
Answer:
a. Fees Earned REVENUE, CREDIT
b. Equipment ASSET, DEBIT
c. Notes Payable LIABILITY, CREDIT
d. Owner Capital EQUITY, CREDIT
e. Cash ASSET, DEBIT
f. Legal Expense EXPENSE, DEBIT
g. Prepaid Insurance ASSET, DEBIT
h. Land ASSET, DEBIT
i. Accounts Receivable ASSET, DEBIT
j. Owner Withdrawals (CONTRA) EQUITY, DEBIT
k. License Fee Revenue REVENUE, CREDIT
l. Unearned Revenue LIABILITY, CREDIT
Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made. The pizzeria’s cost formulas appear below:
Fixed Cost Cost per Cost per
per Month Pizza Delivery
Pizza ingredients $5.00
Kitchen staff $6,030
Utilities $670 $0.90
Delivery person $2.70
Delivery vehicle $690 $2.10
Equipment depreciation $448
Rent $1,990
Miscellaneous $790 $0.15
In November, the pizzeria budgeted for 1,740 pizzas at an average selling price of $13 per pizza and for 200 deliveries. Data concerning the pizzeria’s actual results in November appear below:
Actual Results
Pizzas 1,840
Deliveries 180
Revenue $24,530
Pizza ingredients 8,290
Kitchen staff $5,970
Utilities $915
Delivery person $486
Delivery vehicle $998
Equipment
depreciation $448
Rent $1,990
Miscellaneous $826
Required:
Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November.
Answer:
Milano Pizza
Flexible Budget Performance Report for November
Static Flexible Actual Variances
Budget Budget Results Spending Activity
Sales Revenue $22,620 $23,920 $24,530 $610 F $1,300 F
Pizza ingredients $8,700 $9,200 $8,290 $910 F $500 U
Kitchen staff 6,030 $6,030 5,970 60 F 0 N
Utilities 2,236 $2,326 915 1,411 F 90 U
Delivery person 540 $486 486 0 N 54 F
Delivery vehicle 1,110 $1,068 998 70 F 42 F
Equipment depreciation 448 $448 448 0 N 0 N
Rent 1,990 $1,990 1,990 0 N 0 N
Miscellaneous 1,051 $1,066 826 240 F 15 U
Total expenses $22,105 $22,614 $19,923 $2,691 F $509 U
Explanation:
a) Data and Calculations:
Pizzeria's Cost Formulas:
Fixed Cost Cost per Cost per Static
per Month Pizza Delivery Budget
Pizza ingredients $5.00 $8,700
Kitchen staff $6,030 6,030
Utilities $670 $0.90 2,236
Delivery person $2.70 540
Delivery vehicle $690 $2.10 1,110
Equipment depreciation $448 448
Rent $1,990 1,990
Miscellaneous $790 $0.15 1,051
Budgeted pizzas for November = 1,740
Average selling price per pizza = $13
Average deliveries for the month = 200
Sales revenue = $23,920 (1,840 * $13)
Flexing the budget:
Fixed Cost Cost per Cost per Flexible
per Month Pizza Delivery Budget
Pizza ingredients ($5.00 * 1,840) $9,200
Kitchen staff $6,030 6,030
Utilities $670 ($0.90 * 1,840) 2,326
Delivery person $2.70*180 486
Delivery vehicle $690 $2.10*180 1,068
Equipment depreciation $448 448
Rent $1,990 1,990
Miscellaneous $790 ($0.15*1,840) 1,066
Actual results in November:
Pizzas 1,840
Deliveries 180
Revenue $24,530
Pizza ingredients 8,290
Kitchen staff $5,970
Utilities $915
Delivery person $486
Delivery vehicle $998
Equipment depreciation $448
Rent $1,990
Miscellaneous $826
To complete the flexible budget performance report for Milano Pizza in November, we will calculate the revenue and spending variances, Here's the breakdown:
Revenue Variance:
$610 (Favorable)
Spending Variances :
a. Pizza Ingredients:
$910 (Unfavorable)
b. Kitchen Staff:
$60 (Favorable)
c. Utilities:
-$903 (Favorable)
d. Delivery Person:
$0 (Favorable)
e. Delivery Vehicle:
$620 (Unfavorable)
f. Equipment Depreciation:
$0 (Favorable)
g. Rent:
$0 (Favorable)
h. Miscellaneous:
$523 (Unfavorable)
Activity Variances:
a. Pizzas:
100 (Favorable)
b. Deliveries:
-20 (Unfavorable)
Overall Performance:
Revenue Variance: $610 (Favorable)
Total Spending Variances: -$590 (Unfavorable)
Total Activity Variances: 80 (Favorable)
The flexible budget performance report for Milano Pizza in November shows a favorable revenue variance of $610, an unfavorable spending variance of $590, and a favorable activity variance of 80.
Learn more about flexible budget here:
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A new tennis court complex is planned. Each of two alternatives will last 18 years, and the interest rate is 7%. Use present worth analysis to determine which should be selected.
Construction Cost Annual O&M
A $500,000 $25,000
B 640,000 10,000
Answer:
B should be selected.
Explanation:
Below is the calculation of net present worth:
Present value of A = -500000 - 25000 * (P/A, 7%,18)
Present value = -500000 - 25000 * 10.059087
Present value = -751477.17
Present value of B = -640000 - 10000 * (P/A, 7%,18)
Present value = -640000 - 10000 * 10.059087
Present value = -740590.87
The present value of B is lower so it will be selected.
At the beginning of the current season on April 1, the ledger of Granite Hills Pro Shop showed Cash $3,065; Inventory $4,065; and Common Stock $7,130. The following transactions occurred during April 2017
Apr
5 Purchased golf bags, clubs, and balls on account from Arnie Co. $1,695, terms 3/10, n/60.
7 Paid freight on Arnie Co. purchases $90.
9 Received credit from Arnie Co. for merchandise returned $395.
10 Sold merchandise on account to members $1,514, terms n/30.
12 Purchased golf shoes, sweaters, and other accessories on account from Woods Sportswear $938, terms 2/10, n/30.
14 Paid Arnie Co. in full.
17 Received credit from Woods Sportswear for merchandise returned $138.
20 Made sales on account to members $915, terms n/30.
21 Paid Woods Sportswear in full.
27 Granted credit to members for clothing that did not fit properly $90.
30 Received payments on account from members $1,379.
Requried:
Journalize the April transactions using a periodic inventory system.
Answer and Explanation:
The journal entries are shown below:
On April 5
Purchase Dr $1,695
To account payable $1,695
(Being purchase on account is recorded)
On April 7
Freight in Dr $90
To cash $90
(being cash paid is recorded)
On April 9
Account payable Dr $395
To Purchase return & allowances $395
(being received the credit on returned)
On April 10
Account receivable Dr $1,514
To Sales $1,514
(being merchandise sold on credit)
On April 12
Purchase Dr $938
To account payable $938
(Being purchase on account is recorded)
On April 14
Account payable $1,300
To Cash $1,261
To Purchase discount $39
(being cash paid)
On April 17
Account payable Dr $138
To Purchase return & allowances $138
(being received the credit on returned)
On April 20
Account receivable Dr $915
To Sales $915
(being merchandise sold on credit)
On APril 21
Account payable $800
To Cash $784
To Purchase discount $16
(being cash paid)
On April 27
Sales returns & allowances $90
To account receivable $90
(Being credit granted is recorded)
On April 30
Cash Dr 1,379
To account receivable $1,379
(being cash received is recorded)
plz help me i cant fail this class
The
purpose or objectives of
Competition policy
Answer:
enhance consumer welfare by promoting competition
Explanation:
if i wrote any more, you wouldn't even truly understand what i wrote or how it connects with your question. :/
On April 1, year 1, Hyde Corp., a newly formed company, had the following stock issued and outstanding: 1) Common stock, no par, $1 stated value, 20,000 shares originally issued for $30 per share. 2) Preferred stock, $10 par value, 6,000 shares originally issued for $50 per share. Hyde's April 1, year 1 statement of stockholders' equity should report
Common stock Preferred stock APIC
a) $20,000 $60,000 $820,000
b) $20,000 $300,000 $580,000
c) $600,000 $300,000 $0
d) $600,000 $60,000 $240,000
Answer:
Common stock Preferred stock APIC
a) $20,000 $60,000 $820,000
Explanation:
Calculation to determine what Hyde's April 1, year 1 statement of stockholders' equity should report
Calculation to determine the COMMON STOCK
Common stock=20,000 shares*$1
Common stock=$20,000
Calculation to determine PREFERRED STOCK
Preferred stock =6,000 shares*$10
Preferred stock =$60,000
Calculation to determine ADDITIONAL PAID-IN CAPITAL (APIC)
APIC=[(6000*$50)-(6000*$10)]+[(20,000*$30)+(20,000*$1)]
APIC=($300,000-$60,000)+($600,000-$20,000)
APIC=$240,000+$580,000
APIC=$820,000
Therefore Hyde's April 1, year 1 statement of stockholders' equity should report:
Common stock Preferred stock APIC
$20,000 $60,000 $820,000
Your department has scheduled a 4-hour meeting. A presentation by the head of the department will be given during 1/3 of the meeting. There will also be a 25-minute briefing by the process improvement team, a half-hour presentation by another department, and a 20-minute benefits update from Human Resources. How much time is available for questions or other topics
Answer:
The time available for questions or other topics is 1 hour 25 minutes (85 minutes).
Explanation:
a) Data and Calculations:
The meeting is scheduled for 4 hours = 240 minutes (4 * 60)
Presentation by the department's head = 80 minutes (240/3)
Briefing by the process improvement team = 25 minutes
Presentation by another department = 30 minutes
Benefits update from Human Resources = 20 minutes
Total time taken by the above = 155 minutes
Time available for questions or other topics 85 minutes (240 - 155)
As reported by the Bureau of Labor Statistics, the CPI for Airfare in 2263 was 586.1 (using a base year of 1914 = 100). The CPI for Airfare in 2264 was 605.7. Based on this data, what was the inflation rate of airfare from 2263 to 2264?
Answer: 3.34%
Explanation:
Firstly, we have to calculate the difference in CPI from the year 2263 to 2264 which will be:
= 605.7 - 586.1
= 19.6
Then, the inflation rate will be:
= Difference in CPI / Base CPI × 100
= 19.6/586.1 × 100
= 3.34%
The inflation rate is 3.34%.
Peter temporarily takes over Thomas job in his absence,what does this move represent? (10 marks)
Answer:
A job substitution
Explanation:
A substitute is a person who takes over a job or position from another for a shorter period of time in his absence. The term is known from substitute teachers in the school, but also from substitute priests and substitute doctors who may be subordinate officials who temporarily take over for the superior.
Today, most temporary workers are used in industry and building/construction, where they give companies the opportunity for a faster adaptation to market conditions and thus help to strengthen the competitiveness of the business community.
If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities, then
Answer:
Explanation:
Monopoly is the form of market in which the single market trading products and services are discussed and then the possibility of producing good economic profit is given. The monopoly is linked to the absence of a competitive scenario.
In large volumes, when the customer buys items, individuals are only impacted by the tiniest price fluctuation. Consumers who buy fewer amounts of items are, by contrast, subject to higher pricing as the smallest price changes do not much affect them. There is therefore increased demand price elasticity for customers who purchase bigger amounts of items.
A stationery company makes two types of notebooks: a deluxe notebook with subject di- viders, which sells for $4.00, and a regular notebook, which sells for $3.00. The production cost is $3.20 for each deluxe notebook and $2.60 for each regular notebook. The com- pany has the facilities to manufacture between 2000 and 3000 deluxe and between 3000 and 6000 regular notebooks, but not more than 7000 altogether. How many notebooks of each type should be manufactured to maximize the differ- ence between the selling prices and the production costs
Answer:
A Stationery Company
To maximize contribution (the difference between the selling prices and the production costs), the company should produce 3,000 deluxe and 4,000 regular notebooks.
Explanation:
a) Data and Calculations:
Deluxe Regular
Selling price per unit $4.00 $3.00
Production cost per unit 3.20 2.60
Contribution per unit $0.80 $0.40
Production capacity = 7,000 notebooks
Range of production 2,000 - 3,000 3,000 - 6,000
Notebooks to produce 3,000 4,000
Maximum contribution $2,400 $1,600 = $4,000
Faruq spends all of his income on two goods: tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is $2. If Faruq purchases 10 milkshakes, he can purchase ________ tacos. Group of answer choices 18 8 50 10
Answer:
8
Explanation:
Amount he can spend on tacos = income - total price of milkshakes
total price of milkshakes = 2 x 10 = 20
100 - 20 = 80
quantity of tacos = 80 / 10 = 8
A company took a physical inventory at the end of the year and determined that $833,000 of goods were on hand. In addition, the following items were not included in the physical count:
Management determined that $96,000 of goods purchased were in transit that were shipped f.o.b. destination (goods were actually received by the company three days after the inventory count)
The company sold $40,000 worth of inventory f.o.b. destination.
What amount should Bell report as inventory at the end of the year?
Answer:
$873,000
Explanation:
Calculation of amount of inventory reported by Bell at the end of year :
Inventory amount = $833,000 + $40,000
Inventory amount = $873,000
Therefore, the amount that Bell should report as inventory at the end of the year is $873,000.
Companies in the same industry often select very different distribution networks, because the choice of the distribution network can be used to achieve a variety of supply chain objectives ranging from low cost to high responsiveness.
a. True
b. False
Answer:
T
Explanation:
A firm has a capital structure with $30 million in equity and $90 million of debt. The cost of equity capital is 11% and the pretax cost of debt is 7%. If the marginal tax rate of the firm is 25%, compute the weighted average cost of capital of the firm.
Answer: 6.69%
Explanation:
The weighted average cost of capital is calculated as:
= (Weight of equity * Cost of equity) + (Weight of debt * after-tax cost of debt)
Weight of equity:
= 30 million / (30 + 90 million)
= 25%
Weight of debt:
= 100% - Weight of equity
= 100% - 25%
= 75%
WACC = (25% * 11%) + (75% * 7% *(1 - 25% tax rate))
= 2.75% + 3.9375%
= 6.69%
You place a stop-loss order to sell 500 shares of AAPL with a stop price of $180. The current price is $185. How much will you receive for each share if during the trading day AAPL declines to $170 and closes the trading day at $188
Answer:
$90,000
Explanation:
Calculation to determine How much will you receive for each share
Using this formula
Amount that will be received = Number of shares * Stop price that was reached in a day
Let plug in the formula
Amount that will be received= 500 shares * $ 180
Amount that will be received= $ 90,000
Therefore How much will you receive for each share is $90,000
a 17-year annuity pays $1,100 per month, and payments are made at the end of each month. The interest rate is 16 percent compounded monthly for the first 6 years and 13 percent compounded monthly thereafter. What is the present value of the annuity
Answer:
The present value of the annuity is $73,091.50
Explanation:
Use the following formula to calculate the present value of the annuity
Present value of annuity = ( Annuity Payment x Annuity factor for first 6 years ) + [ ( Annuity Payment x Annuity factor for after 6 years ) x Present value factor for 6 years ]
Where
Annuity Payment = $1,000
Annuity factor for first 6 years = 1 - ( 1 + 16%/12 )^-(6x12) / 16%/12 = 46.10028344
Annuity factor for after 6 years = 1 - ( 1 + 13%/12 )^-((17-6)x12) / 13%/12 = 70.0471029820
Present value factor for 6 years = ( 1 + 16%/12)^-(6x12) = 0.385329554163
Placing values in the formula
Present value of annuity = ( $1,000 x 46.10028344 ) + [ ( $1,000 x 70.0471029820 ) x 0.385329554163 ]
Present value of annuity = $46,100.28 + $26,991.22
Present value of annuity = $73,091.50
Identify the type of production process that is most applicable for a company that makes soft drinks. A. Assembly line B. Continuous flow C. Batch shop D. Job shop E. Project
Answer:
B. Continuous flow
Explanation:
The Continuous flow production process should be applied for manufacturing the products in the continuous product without any breakage. It also saves the money, time and the cost related to the labor
It is considered to the most applicable process for the soft drinks as each and every ingredients is to be added for each line of the process
Therefore as per the given situation, the option b is correct
Analyze the market for textbooks if printing costs for textbooks decrease due to the use of synthetic paper.
If Bangladesh is open to international trade in oranges without any restrictions, it will ___________ tons of oranges. Suppose the Bangladeshi government wants to reduce imports to exactly 120 tons of oranges to help domestic producers. A tariff of _________ per ton will achieve this. A tariff set at this level would raise $_________ in revenue for the Bangladeshi government.
Question Completion:
Assume that the price per ton of oranges in the international market is $810 and equilibrium is established at the price of $900 for 120 tons.
Answer:
If Bangladesh is open to international trade in oranges without any restrictions, it will ____import____ tons of oranges. Suppose the Bangladeshi government wants to reduce imports to exactly 120 tons of oranges to help domestic producers. A tariff of ____$90____ per ton will achieve this. A tariff set at this level would raise $___10,800______ in revenue for the Bangladeshi government.
Explanation:
A tariff of $90 per ton will raise the price of a ton of oranges to $900 ($810 per ton as indicated on the question). When the price is raised to $900 in the domestic market, the quantity demanded will equalize with the quantity supplied at 120 tons.
Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 86,400 units per year is: Direct materials $ 2.40 Direct labor $ 2.00 Variable manufacturing overhead $ 0.90 Fixed manufacturing overhead $ 3.75 Variable selling and administrative expenses $ 1.40 Fixed selling and administrative expenses $ 1.00 The normal selling price is $22.00 per unit. The company’s capacity is 106,800 units per year. An order has been received from a mail-order house for 1,700 units at a special price of $19.00 per unit. This order would not affect regular sales or the company’s total fixed costs. Required: 1. What is the financial advantage (disadvantage) of accepting the special order? 2. As a separate matter from the special order, assume the company’s inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. The company does not expect the selling of these inferior units to have any effect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for the inferior units?
Answer:
1. The financial advantage of accepting the special order is $20,910.
2. The relevant unit cost is the variable selling and administrative expenses of $1.40 per unit.
Explanation:
1. What is the financial advantage (disadvantage) of accepting the special order?
Since this order would not affect regular sales or the company's total fixed costs, it implies that only the variable costs will be considered to determine the financial advantage (disadvantage) of accepting the special order.
Therefore, we have:
Total variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead + Variable selling and administrative expenses = $2.40 + $2.00 + $0.90 + $1.40 = $6.70
Special order financial advantage (disadvantage) = (Special price per unit - Total variable cost per unit) * Units of special order = ($19.00 - $6.70) * 1,700 = $20,910
Therefore, the financial advantage of accepting the special order is $20,910.
2. As a separate matter from the special order, assume the company’s inventory includes 1,000 units of this product that were produced last year and that are inferior to the current model. The units must be sold through regular channels at reduced prices. The company does not expect the selling of these inferior units to have any effect on the sales of its current model. What unit cost is relevant for establishing a minimum selling price for the inferior units?
Since these units are inferior to the current model and must be sold through regular channels at reduced prices, the unit cost that is relevant for establishing a minimum selling price for the inferior units is therefore the variable selling and administrative expenses of $1.40 per unit.