Answer:
a. FV = $1,000,000
rate = 9.7%
n = 40 periods
FVIFA = [(1 + 0.097)⁴⁰ - 1] / 0.097 = 407.9960231
annual savings = $1,000,000 / 407.9960231 = $2,451.00
b. FV = $1,000,000
rate = 9.7%
n = 30 periods
FVIFA = [(1 + 0.097)³⁰ - 1] / 0.097 = 155.4306295
annual savings = $1,000,000 / 155.4306295 = $6,433.74
FV = $1,000,000
rate = 9.7%
n = 20 periods
FVIFA = [(1 + 0.097)²⁰ - 1] / 0.097 = 55.35978429
annual savings = $1,000,000 / 55.35978429 = $18,063.65
what kind of life insurance policy issued by mutual insurer provides a return od divisible surplus
Answer:
participating life insurance policy <- A mutual insurer issues life insurance policies that provide a return of divisible surplus.
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ll else being equal, an increase in the yield to maturity of a bond will result in: a. a lower risk of suffering losses in the market values of the bond portfolios. b. a decrease in the rate of return at which the cash flows from the portfolios can be reinvested. c. an increase in the maturity value of the bond. d. a greater interest rate price risk on a long-term bond than on a short-term bond. e. an increase in the market price of the bon
Answer:
d. a greater interest rate price risk on a long-term bond than on a short-term bond.
Explanation:
A bond can be defined as a debt or fixed investment security, in which a bondholder (investor or creditor) loans an amount of money to the bond issuer (government or corporations) for a specific period of time. The bond issuer are expected to return the principal (face value) at maturity with an agreed upon interest (coupon), which are paid at fixed intervals.
Generally, most bonds with shorter maturity time respond less dramatically to changes in interest rates when compared to bonds having longer maturity.
This ultimately implies that, the risk associated with short bonds isn't really significant because their interest rates are less likely to change substantially within that short period of time unlike bonds with longer maturity.
Yield to maturity can be defined as the bond's total rate of return required by the secondary market while the coupon rate is defined as the annual interest of a bond divided by its face value.
For example, when a bond is issued at a par or face value of €1,000, at maturity the investor would be paid €1,000. But because bonds are being sold before its maturity, it would trade below its face value.
All else being equal (ceteris paribus), an increase in the yield to maturity of a bond will result in a greater interest rate price risk on a long-term bond than on a short-term bond.
An interest-rate risk can be defined as the risk associated with bond owners due to fluctuating interest rates. This risk has a direct level of impact on the value of fixed income securities such as bonds.
The cross price elasticity between gasoline and driving :___________.
a. is positive so they are complements.
b. is negative so they are substitutes
c. is positive so they are substitutes.
d. is negative so they are complements
Answer:
d. is negative so they are complements
Explanation:
The gasoline and driving are complement to each other that means if the price of the gasoline is increased so there should be the less pricing as it will become costlier now and if the price of the gasoline is decreased so there is more driving. It has an inverse relationship between two goods
So, the cross price elasticity of goods would be negative
Hence, the option d is correct
A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit, fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:
Answer:
remain the same
Explanation:
Breakeven quantity are the number of units produced and sold at which net income is zero
Breakeven quantity = fixed cost / price – variable cost per unit
Initial Breakeven quantity = $720,000 / ($30 - $18) = 60,000
New Breakeven quantity = $900,000 / ($30 - $15) = 60,000
Breakeven point remained the same
After considering the Burberry story, identify which business-level strategy the company is attempting to pursue?
a. Focused Differentiation
b. Focused Low Cost
c. Broad Low Cost
d. Integrated Differentiation and Low Cost
Answer:
The answer is "Option a".
Explanation:
The concentrated product differentiation wants to deliver unique characteristics which satisfy the business requirements of a specific market. Many companies who adopt a focused product differentiation focus exclusively on a certain distribution platform, also including selling upon on the Internet alone.
By studying that tale of Burberry, the company is trying it develop a strategy of places in the world. The strategy of places in the world involves the arise from different of products to a limited group of customers for premium objects usually.
Mark owns a driving range in New York City. He has taken notice of the three competitors who are located very close to his business. Mark decides to look at his competitors' pricing and then determine his best pricing strategy based on all of the information. In this scenario, Mark is utilizing ________.
Answer:
competitor-based pricing
Explanation:
Since in the given situation, it is mentioned that mark look to the competitor pricing and them measures it pricing startegy
So here Mark is utilizing competitor based pricing as the mark has decided the price that depend upon his competiton. It is mainly applied for those products who are almost same with the competitor products.
Therefore the above should be the answer for the given scenario.
difference between authority and responsibility
Answer:
An authority is a power to give orders and ask your subordinates to perform certain duties. Authority can be given to a person by government’s executives, owner of an organization, or by the representatives of GOD.
An authority is a legitimate power to influence people to compel them to perform the task given to them. For example, a mob has the power to punish a criminal, but they don’t have legitimate authority to punish the criminal.
The authority lies in the hands of the law. Similarly, in an organization, the authority lies in the hands of a manager to get organizational tasks accomplished by his subordinates.
However, the authority of the manager is limited to a particular department of the organization. He has no authority on his employees outside the organization.
Authority is the consequence of the position of an individual in an organization. A person can only be at the superior position of the organization if he has authority; a person with no authority can never be on the top position of an organization.
Therefore, the degree of authority is highest at the top level, and its degree keeps on decreasing the levels of the organization. That means only a person at the top level can give orders to the people at a low level and can compel them to perform tasks given to them, and a person at lower level can’t give orders to the people at the top or his peers.
Authority can be of two types such as official authority (where authority is given to a person by the organization he works for), and other is a personal authority (where authority is given to a person because of his ability to influence people in the organization.
What is the Responsibility?
Being responsible
Responsibility is a moral duty or an obligation of an employee, whether he is a manager or subordinate to fulfill the task given to them. The responsibility starts as soon as the job is assigned to the employee and finish with the completion of the task.
The person is responsible for the consequence of his performance in the task. The responsibility comes with authority.
A manager is responsible for the accomplishment of the task. The responsibility moves upwards in the organization from a lower level of employees to the upper level of management.
The responsibility is originated from the superior-subordinate relationship in an organization. Because of this relationship, the manager can do a task from his subordinates with responsibility.
Difference between authority and responsibility
Difference between authority and responsibility
AUTHORITY RESPONSIBILITY
An authority is a power or right that a person gets because of his designation, role, or job. A responsibility is an obligation that an employee has to fulfill the work bestowed on him
An authority is the outcome of a formal position in an organization. A responsibility is the outcome of a superior-subordinate relationship.
An authority is a legal right given to a person. A responsibility is consequence of authority.
It is a delegation of authority. It is an assumption of responsibility.
The flow of authority is from the upper level to lower level. The flow of authority is from lower level to upper level.
Authority requires the ability to give orders. Responsibility requires the ability to follow orders.
The authority lasts for a long period of time. The responsibility ends as soon as the work bestowed on the employee is complete.
The objective of the authority is to make decisions and implement them effectively. The objective of responsibility is to perform duties effectively assigned by the superiors.
U.S.-based Myva Foods Inc. is expanding its business to the Asian market. Which of the following will NOT be effective in the company's efforts to expand to international markets?
A) paying close attention to the cultural differences between Myva's home country and the host countries.
B) finding new ways to blend the Four Ps of the marketing mix in the new market by making an effort to understand the local culture.
C) applying the same marketing mix Myva uses in the U.S.market to the Asian market.
D) putting more effort into planning strategies for the international markets,even though it has experienced success in the U.S.market.
Answer:
Myva Foods Inc.
The attempt that will NOT be effective in the company's efforts to expand to international markets is:
C) applying the same marketing mix Myva uses in the U.S. market to the Asian market.
Explanation:
Expanding to the Asian market requires a different marketing mix than Myva is currently using in its U.S. home market. This means that if it applies the same marketing mix in the Asian market, it may likely remain unsuccessful. The two markets have cultural differences. So, it must find new ways to blend the Four Ps of Price, Product, Promotion and Place, to reflect its understanding of the Asian culture.
The attempt that will NOT be effective in the company's efforts to expand to international markets is: Applying the same marketing mix Myva uses in the U.S. market to the Asian market.
What is international market?International market refers to any geographical region where a company conducts business that is outside the territorial boundaries of its company's home country.
With regards to the above, expanding to the Asian market requires a different marketing mix than Myva is currently using in its U.S. home market. This is because if it applies the same marketing mix in the Asian market, it may likely remain unsuccessful.
Also, the two markets have different culture. It must therefore find new ways to blend the Four Ps of Price, Product, Promotion and Place, to reflect its understanding of the Asian culture.
Hence, the attempt that will NOT be effective in the company's efforts to expand to international markets is: Applying the same marketing mix Myva uses in the U.S. market to the Asian market
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The allowable increase for a constraint is Group of answer choices how much resource to use to get the optimal solution. the amount by which the resource can increase given shadow price. how many more units of resource to purchase to maximize profits. the amount by which the constraint coefficient can increase without changing the final optimal value.
Answer: the amount by which the resource can increase given shadow price.
Explanation:
The allowable increase refers to the amount by which the coefficient of the objective function can be increased without bringing about a change in the optimal basis.
The allowable increase for a constraint is the amount by which the resource can increase given shadow price. Therefore, the correct option is B.
What is one of the key phases of procurement processes that employ competitive bidding mechanisms?
Warner Company purchases $52,200 of raw materials on account, and it incurs $62,200 of factory labor costs. Supporting records show that (a) the Assembly Department used $31,900 of the raw materials and $44,200 of the factory labor, and (b) the Finishing Department used the remainder. Manufacturing overhead is assigned to departments on the basis of 160% of labor costs. g
Answer and Explanation:
The journal entry is given below:
Work in process - finishing department $28,800 ($62,200 - $44,200) × 160%
Work in process - assembly department $70,720 ($44,200 × 160%)
To Manufacturing overhead $99,520
(Being the overhead allocated to assembly and finishing department)
Here the work in process is debited as it increased the assets and the manufacturing overhead is credited as it decreased the expesne
Service levels are reported accurately is an example of which control
Answer:
Service level measures the performance of a system. Certain goals are defined and the service level gives the percentage to which those goals should be achieved. Fill rate is different from service level.
Examples of service level:
Percentage of calls answered in a call center.
Percentage of customers waiting less than a given fixed time.
Percentage of customers that do not experience a stockout.
Percentage of all parts of an order being fulfilled completely
(Explanation) if one component part of an order is not filled the Service Level for that order is Zero, If all the component parts of an order are delivered except one is filled at 51%, the service level for that order is 51% (This system is often used in supply chain delivery to manufacturing), This is a very different from a simple order fill measurement which does not consider line items on the order.
Explanation:
thank me later
A firm has a total market value of assets of $300 that includes $40 million of cash and 12 million shares outstanding. If the firm uses $30 million of its cash to repurchase shares, what is the new price per share
Answer: $25.00
Explanation:
Original share price:
= Value of assets / Shares outstanding
= 300 million/ 12 million
= $25.00
Company uses $30 million to buy shares which means that it buys:
= 30 million / 25
= 1,200,000 shares
New value of assets:
= 300 million - 30 million cash used
= $270 million
New price per share:
= 270 million / (12,000,000 - 1,200,000 shares)
= 270 million / 10,800,000
= $25.00
Tobin Supplies Company expects sales next year to be $520,000. Inventory and accounts receivable will increase $90,000 to accommodate this sales level. The company has a steady profit margin of 20 percent with a 30 percent dividend payout. How much external financing will Tobin Supplies Company have to seek
Answer:
$17,200
Explanation:
Calculation to determine How much external financing will Tobin Supplies Company have to seek
Net Income=[$520,000 x 20%]
Net Income = $104,000
Dividend Pay-out= [$104,000 x 30%]
Dividend Pay-out = $31,200
Additions to Retained Earnings = [$104,00 - $31,200]
Additions to Retained Earnings=$72,800
Now let determine the The External Financing Needed using this formula
The External Financing Needed = Increase in Assets – Additions to retained earnings
Let plug in the formula
The External Financing Needed= $90,000 - $72,800
The External Financing Needed= $17,200
Therefore The External Financing Needed is $17,200
Garcia Company issues 11.5%, 15-year bonds with a par value of $450,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 9.5%, which implies a selling price of 113 3/4.
Required:
Prepare the journal entry for the issuance of these bonds for cash on January 1.
Answer:
Journal Entry
Date Account Titles and Explanation Debit Credit
Jan 1 Cash $511,875
Bond payable $450,000
Premium on bond payable $61,875
($450,000*13.75%)
(To record issue of bonds at premium)
Which method of cash distribution carries more informational content when its announcement is made: the cash dividends or the stock repurchase
Answer:
cash dividend
Explanation:
According to signalling theory, payment of dividends communicate management's earnings forecast. Thus dividend payment provide information about the health of a company to its investors.
Harding Enterprises has developed a new product called the Gillooly Shillelagh. The market demand for this product is given as follows:
Q= 240 - 4P
a. At what price is the price elasticity of demand equal to zero?
b. At what price is demand infinitely elastic?
c. At what price is the price elasticity of demand equal to one?
d. If the shillelagh is priced at $40, what is the point price elasticity of demand?
Answer:
0
$60
$30
-2
Explanation:
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.
If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.
Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one
Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded
Infinitely elastic demand is perfectly elastic demand. Demand falls to zero when price increases
Perfectly inelastic demand is demand where there is no change in the quantity demanded regardless of changes in price.
the intercept of price on the inverse demand curve = 240 / 4 = $60
The intercept of quantity on the inverse demand curve = 240
Demand is infinitely elastic at the intercept on the price axis = 0
Demand is completely inelastic at the intercept on the quantity axis = 60 Demand is unit elastic at the half-way point between these two extremes (60 + 0) / 2 = 30
Point elastic demanded = (40/80) (-4) = -2
You just won the lottery. Congratulations! The jackpot is $60,000,000, paid in eight equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really win? Use an annual interest rate of 11.00%.
Why do we need an organizational structure?
Structure will give employees more clarity, help manage expectations, enable better decision-making and provide consistency.
Your company will generate $60,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 8.50 percent, what is the present value of the savings? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)Present value
Answer:
The answer is "[tex]\$307,110.81[/tex]"
Explanation:
Following are the calculation for the present value of the saving:
Present value[tex]= c\times \frac{1-[\frac{1}{(1+r)^t}]}{r}\\\\[/tex]
[tex]=\$60,000 \times \frac{1-[\frac{1}{(1+8.5\%)^7}]}{8.5\%}\\\\=\$60,000 \times 5.118514\\\\= \$307,110.81\\\\[/tex]
therefore, the present value of the savings is [tex]\$307,110.81[/tex]
Q1. Identify the different types of external and internal trends that have impact on HRM? Give an example of each trends in your own words. (Words limit up to 350)
Answer:
Internal influences on HRM - Corporate objectives, Operational strategies, Marketing strategies, Financial strategies
External influences - Market changes, economic changes, social changes, technology changes, Political & legal changes
Explanation:
Internal influences on HRM
a) Corporate objectives
Example – Objective of cost optimisation leads to restructuring, redundancies, delayering, etc.
b) Operational strategies
Example – Improvisation is IT system may require reduction in staff and training of staff or hiring of new staff
c) Marketing strategies
Example – A new sales team is required to sell a new product or to enter into a new geography
d) Financial strategies
Example – Reduction in cost of training programme would require HRM team to outsource training
External influences
a) Market changes
Example – Loss in business in specific segment or region require changes in divisional management or job losses
b) Economic changes
Example – When economy is low, there will be more unemployment and hence availability of people at low cost.
c) Technological changes
For example – Introduction of technology platforms to create social networking with employees and customers
d) Social changes
Example – Adoption of flexible working options in times of pandemic
e) Political & legal changes
Example – Changes in maximum working time and other employment rights affect the workforce planning and remuneration of HRM
Which statement is true of the relationship between risk and return?
O The grear the risk, the greater the potential return.
O The relationship between risk and return varies.
The greater the risk, the lower the potential return.
O The relationship depends on the individual investment.
Answer:
the relationship depends on the individual investment
Answer:
The relationship depends on the individual investment
Candle Corp. applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $80 per direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of a necklace. Estimates for this order include: Direct materials of $44,000; 300 direct manufacturing labor-hours at $25 per hour; and a 20% markup rate on total manufacturing costs. The bid price for this special order is ________.
Answer:
The total Bid price for special order is $90,600.
Explanation:
ou purchase one MBI July 127 call contract (equaling 100 shares) for a premium of $17. You hold the option until the expiration date, when MBI stock sells for $137 per share. You will realize a ______ on the investment.
Answer:
$700 profit
Explanation:
Exercise Price = $127
Expiration date price = $137
Profit for Calls buyer = $137 - $127 = $10
1 Call = 100 shares. So, the total profit = $10*100 = $1000
Buying price of one option = $17
Total buying price of the call option = $17*100 = $1,700
Total loss for the buyer = $1,700 - $1,000
Total loss for the buyer = $700
Note: Loss for the buyer = Profit for the seller. So, i will realize a $700 profit on the investment.
You have just applied for a 30year 100000 mortgage at a rate of 10%.what must be annual payment be?
Answer:
The correct answer is "$10,607.92".
Explanation:
Given:
Amount borrowed,
P = 100000
Interest rate,
r = 10%
or,
= 0.1
Time,
= 30 years
Now,
The annual payment will be:
⇒ [tex]A=P\times \frac{r(1+r)^n}{(1+r)^n-1}[/tex]
[tex]=100000\times \frac{0.1(1+0.1)^{30}}{(1+0.1)^{30}-1}[/tex]
[tex]=10,607.92[/tex] ($)
Razor Corporation's cost of preferred stock is 8%. The company's stock sells for $100 a share with selling costs are $5. What is the annual dividend to the preferred stock
Answer:
Razor Corporation
The annual dividend to the preferred stockholders is:
= $8 per share
Explanation:
a) Data and Calculations:
Cost of preferred stock = 8%
Selling price per preferred stock = $100
Annual dividend to the preferred stock = $100 * 8% = $8 per share
b) The $8 per share annual dividend of Razor's preferred stock dividend is computed by applying the fixed percentage to the preferred stock's total par value. In the above case, it is assumed that the par value or nominal value of the stock is $100. The cost of selling or issuing the stock is not factored when calculating the dividend.
Equipment acquired on January 6 at a cost of $375,000 has an estimated useful life of 20 years
and an estimated residual value of $25,000.
A. What was the annual amount of depreciation for the Years 1-3 using the straight-line method
of depreciation?
B. What was the book value of the equipment on January 1 of Year 4?
C. Assuming that the equipment was sold on January 3 of Year 4 for $300,000, journalize the
entry to record the sale.
D. Assuming that the equipment had been sold on January 3 of Year 4 for $325,000 instead
of $300,000, journalize the entry to record the sale.
Answer:
A. Year 1 $17,500
Year 2 $17,500
Year 3 $17,500
B. $322,500
C. Dr Cash $300,000
Dr Accumulated Depreciation-Equipment $52,500
Dr Loss on disposal of Equipment $22,500
Cr Equipment $375,000
D. Dr Cash $325,000
Dr Accumulated Depreciation-Equipment $52,500
Cr Equipment $375,000
Cr Gain on disposal of Equipment $2,500
Explanation:
A. Calculation to determine What was the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation
Year 1 Depreciation expense Year 1=($375,000-$25,000)/20 years
Year 1 Depreciation expense Year=$17,500
Year 2 Depreciation expense Year=($375,000-$25,000)/20 years
Year 2 Depreciation expense Year=$17,500
Year 3 Depreciation expense Year=($375,000-$25,000)/20 years
Year 3 Depreciation expense Year=$17,500
Therefore the annual amount of depreciation for the Years 1-3 using the straight-line method of depreciation is :
Year 1 $17,500
Year 2 $17,500
Year 3 $17,500
B. Calculation to determine What was the book value of the equipment on January 1 of Year 4
Book value of Equipment=[$375,000-($17,500*3)]
Book value of Equipment=[$375,000-$52,500)
Book value of Equipment=$322,500
Therefore the book value of the equipment on January 1 of Year 4 is $322,500
C. Preparation of the journal entry to record the sale.
Jan. 3
Dr Cash $300,000
Accumulated Depreciation-Equipment $52,500
($17,500*3)
Dr Loss on disposal of Equipment $22,500
($322,500-$300,000)
Cr Equipment $375,000
(To record sales)
D. Preparation of the journal entry to record the sale.
Jan. 3
Dr Cash $325,000
Dr Accumulated Depreciation-Equipment $52,500
($17,500*3)
Cr Equipment $375,000
Cr Gain on disposal of Equipment $2,500
($325,000+$52,500-$375,000)
(To record sales)
If capital rents for $25 per unit per hour, labor can be hired for $9 per unit per hour, the level of total factor productivity is normalized to 1, and the firm is minimizing costs.(a) Determine whether the production function exhibits diminishing marginal returns to each input.
Answer:
Following are the solution to the given question:
Explanation:
The decrease of a marginal input return implies that its input is increasing by one unit, thereby decreasing its marginal input product.
Function of production
[tex]F(K, L) = AK^{\frac{3}{4}} L^{\frac{3}{4}}[/tex]
Its capital products subject (MPK) is derived by differentiating the factor of production from K.
[tex]MPK = \frac{3}{4}\times AK^{\frac{3}{4}} - 1L^{\frac{3}{4}}\\\\MPK = \frac{3}{4}AK^{-\frac{1}{4}}L^{\frac{3}{4}}\\\\MPK = \frac{3}{4}\times A\times (\frac{L^{\frac{3}{4}}}{K^{\frac{1}{4}}})[/tex]
Note: When a value is changed from numerator to denominator, then the power symbol shifts between positive to negative.
Since k is in the denominator, K decreases [tex]\frac{3}{4}\times A\times (\frac{L^{\frac{3}{4}}}{K^{\frac{1}{4}}})[/tex], and therefore MPK is reduced.
There's hence a decreased effective return on capital again for production function.
Its marginal labor product (MPL) is determined by distinguishing the manufacturing function from L.
[tex]MPL = (\frac{3}{4})\times AK^{\frac{3}{4}}L^{\frac{3}{4}}-1\\\\MPL = (\frac{3}{4})AK^{\frac{3}{4}}L^{-\frac{1}{4}}\\\\MPL = (\frac{3}{4})\times A\times (\frac{K^{\frac{3}{4}}}{L^{\frac{3}{4}}})[/tex]
The denominator of L reduces L [tex](\frac{3}{4})\times A\times (\frac{K^{\frac{3}{4}}}{L^{\frac{3}{4}}})[/tex] and therefore reduces MPL.
So there is a decreasing marginal return to labor in the production function.
how can an oligopoly cause market failure
Answer:
Inefficiency, instability and indeterminacy brought about by oligopoly may result in a market crash. The firm's supremacy is established as the capacity is established more and more, but little is produced in order to create artificial barrier to entry.
Explanation:
The promise of bigger profits gives oligopolists an incentive to cooperate. However, collusive oligopoly is inherently unstable, because the most efficient firms will be tempted to break ranks by cutting prices in order to increase market share.
Oligopoly causes market failure when the whole market is controlled by the suppliers by managing the prices of goods and services.
What is oligopoly?
Small numbers of suppliers control markets in an oligopoly. It is generally referred to as competitiveness among a small number of people and is a type of imperfect competition.
Because of this interconnection, market participants in an oligopolistic environment are not able to act independently of one another. As a result, these firms must determine whether to raise, drop, or keep a fixed price.
In an oligopoly, as there are few suppliers to decide the prices of goods and services which can lead to supply and demands of the goods sometimes, they can raise prices so high and sometimes too low depending on the factor of decision making.
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The Engine Division of MurphyMotor Corporation uses 5,000 carburetors per month in its production of automotive engines. It presently buys all of the carburetors it needs from two outside suppliers at an average cost of $100. The Carburetor Division of MurphyMotor Corporation manufactures the exact type of carburetor that the Engine Division requires. The Carburetor Division is presently operating at its capacity of 15,000 units per month and sells all of its output to a foreign car manufacturer at $106 per unit. Its cost structure (on 15,000 units) is: Variable production costs $70 Variable selling costs 10 All fixed costs 10 Assume that the Carburetor Division would not incur any variable selling costs on units that are transferred internally. Refer to MurphyMotor Corporation. If the two divisions agree to transact with one another, corporate profits will:__________:
a. rise by $50,000 per month
b. drop by $30,000 per month
c. rise or fall by an amount that depends on the level of the transfer price
d. rise by $20,000 per month
Answer:
The correct option is d. rise by $20,000 per month.
Explanation:
Since it is assumed that the Carburetor Division would not incur any variable selling costs on units that are transferred internally, this implies that the variable selling costs is NOT relevant to the determination of the transfer price per unit to be used in calculating corporate profit. Therefore, the transfer price per unit can be calculated as follows:
Transfer price per unit = Price to foreign car manufacturer per unit = Price to foreign car manufacturer per unit - Variable selling costs per unit = $106 - $10 = $96
Rise in corporate profit per month = (Average cost per unit from the two outside suppliers - Transfer price per unit) * Number of carburetors used per month = ($100 - $96) * 5,000 = $20,000
This shows that if the two divisions agree to transact with one another, corporate profits will: rise by $20,000 per month.
Therefore, the correct option is d. rise by $20,000 per month.