Determine whether each of the following is true or false. Explain why. a. Average cost equals marginal cost at the minimum efficient scale of plant. b. When total fixed cost and price are held constant, an increase in average variable cost will typically cause a reduction in the breakeven activity level. c. If εC > 1, diseconomies of scale and increasing average costs are indicated. d. When long-run average cost is decreasing, it can pay to operate larger plants with some excess capacity rather than smaller plants at their peak efficiency. e. An increase in average variable cost always increases the degree of operating leverage for firms making a positive net profit.
> Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow. Historically, cost of goods sold is about 60 percent of sales revenue. Selling and admin
> Lois Bragg owns a small restaurant in Boston. Ms. Bragg provided her accountant with the following summary information regarding expectations for the month of June. The balance in accounts receivable as of May 31 is $40,000. Budgeted cash and credit sale
> The accountant for Jean’s Dress Shop prepared the following cash budget. Jean’s desires to maintain a cash cushion of $10,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of eac
> January budgeted selling and administrative expenses for the retail shoe store that Craig Shea plans to open on January 1, 2018, are as follows: sales commissions, $50,000; rent, $30,000; utilities, $10,000; depreciation, $5,000; and miscellaneous, $2,50
> The budget director for Kanosh Cleaning Services prepared the following list of expected selling and administrative expenses. All expenses requiring cash payments are paid for in the month incurred except salary expense and insurance. Salary is paid in t
> Executive officers of Stoneham Company are wrestling with their budget for the next year. The following are two different sales estimates provided by two difference sources. Stoneham’s past experience indicates that cost of goods sold
> Prepare revised product-line earnings statements based on the elimination of Sugar-Bits. Revenue (12,000 units × $1,200)…………………………………………………………….$14,400,000 Unit-level variable costs Product materials cost (12,000 × $60)………………………………………….……………..(720
> Teresa Flanagan, the accountant, is a perfectionist. No one can do the job as well as she can. Indeed, she has found budget information provided by the various departments to be worthless. She must change everything they give her. She has to admit that h
> Production workers for Essa Manufacturing Company provided 300 hours of labor in January and 600 hours in February. Essa expects to use 5,000 hours of labor during the year. The rental fee for the manufacturing facility is $6,000 per month. Required: Ex
> Fanya Construction Company expects to build three new homes during a specific accounting period. The estimated direct materials and labor costs are as follows. Assume Fanya needs to allocate two major overhead costs ($80,000 of employee fringe benefits
> Willey Company makes three products in its factory: plastic cups, plastic tablecloths, and plastic bottles. The expected overhead costs for the next fiscal year include the following: Factory manager’s salary……………………………………$210,000 Factory utility cost……
> Tyson Hats Corporation manufactures three different models of hats: Vogue, Beauty, and Glamour. Tyson expects to incur $480,000 of overhead cost during the next fiscal year. Other budget information follows: Required: a. Use direct labor hours as the c
> Russell Department Stores, Inc. has three departments: women’s, men’s, and children’s. The following are the indirect costs related to its operations. Vacation pay Sewer bill Staples Natural gas bill Pens Ink cartridges Payroll taxes Paper rolls for cash
> Ware Manufacturing Company produced 2,000 units of inventory in January 2018. It expects to produce an additional 14,000 units during the remaining 11 months of the year. In other words, total production for 2018 is estimated to be 16,000 units. Direct m
> Rasmussen Corporation expects to incur indirect overhead costs of $80,000 per month and direct manufacturing costs of $12 per unit. The expected production activity for the first four months of 2017 is as follows. Required: a. Calculate a predetermined
> Beasley Services Company (BSC) has 50 employees, 28 of whom are assigned to Division A and 22 to Division B. BSC incurred $450,000 of fringe benefits cost during 2018. Required: Determine the amount of the fringe benefits cost to be allocated to Divis
> Miriana Clinics provides medical care in three departments: internal medicine (IM), pediatrics (PD), and obstetrics gynecology (OB). The estimated costs to run each department follow: Miriana expects to incur $450,000 of indirect (overhead) costs in th
> Real-world companies often reduce the complexity of their operations in an attempt to increase profits. In late 2014 and early 2015 McDonald’s Corporation announced a series of restructuring efforts it planned to undertake t
> Competitive Markets Concepts. Indicate whether each of the following statements is true or false, and explain why. a In long-run equilibrium, every firm in a perfectly competitive industry earns zero profit. b. Perfect competition exists in a market wh
> Dynamic Competitive Equilibrium. Wal-Mart and other movie DVD retailers, including online vendors like amazon.com, employ a two-step pricing policy. During the first six months following a theatrical release, movie DVD buyers are wiling to pay a premiu
> Competitive Market Equilibrium. Dozens of Internet web sites offer quality auto parts for the replacement market. Their appeal is obvious. Price-conscious shoppers can often obtain up to 80% discounts from the prices charged by original equi
> Long-run Competitive Firm Supply. The Hair Stylist, Ltd., is a popular-priced hairstyling salon in College Park, Maryland. Given the large number of competitors, the fact that stylists routinely tailor services to meet customer needs, and the lack o
> The Heritage Club at Harbor Town offers elegant accommodations for discriminating vacationers on Hilton Head Island, South Carolina. Like many vacation resorts, Heritage Club has discovered the advantages of offering its services on an annual membership
> The idea of using the difference between the market value of the firm and accounting book values as an indicator of market power and/or valuable intangible assets stems from the pioneering work of Nobel laureate James Tobin. Tobin introduced the so-calle
> Coach Industries, Inc., is a leading manufacturer of recreational vehicle products. Its products include travel trailers, fifth-wheel trailers (towed behind pick-up trucks), and van campers, as well as parts and accessories. Coach offers its fifth-wheel
> The General Eclectic Company manufactures an electric toaster. Sales of the toaster have increased steadily during the previous five years, and, because of a recently completed expansion program, annual capacity is now 500,000 units. Production and sales
> Hathaway-Ross Instruments, Inc., manufactures an innovative piece of diagnostic equipment used in medical laboratories and hospitals. OSHA has determined that additional safety precautions are necessary to bring radioactive leakage occurring during use o
> Coal-fired electricity-generating plants emit substantial amounts of sulfur dioxide and particulate pollution into the atmosphere. Concerned citizens are appalled at the aesthetic and environmental implications of such pollution, as well as the potential
> Short-run Market Supply. New England Textiles, Inc., is a medium-sized manufacturer of blue denim that sells in a perfectly competitive market. Given $25,000 in fixed costs, the total cost function for this product is described by: TC = $25,000 + $1Q +
> Short-run Firm Supply. Farm Fresh, Inc., supplies sweet peas to canneries located throughout the Mississippi River Valley. Like many grain and commodity markets, the market for sweet peas is perfectly competitive. With $250,000 in fixed costs, the compa
> Short-run Firm Supply. Florida is the biggest sugar-producing state, but Michigan and Minnesota are home to thousands of sugar beet growers. Sugar prices in the United States average about 20¢ per pound, or more than double the world-wide average of le
> Controller Elliot Reid has asked you to review the pricing practices of Hollywood Medical, Inc. Use the following data to calculate the relevant markup on cost and markup on price for the following disposable items: Marginal Cost Markup оn Cost (%)
> Each ton of ore mined from the Baby Doe Mine in Leadville, Colorado, produces one ounce of silver and one pound of lead in a fixed 1:1 ratio. Marginal costs are $10 per ton of ore mined. The demand and marginal revenue curves for silver are PS = $11 - $0
> Textbook publishers evaluate market size, the degree of competition, expected revenues, and costs for each prospective new title. With these data in mind, they estimate the probability that a given book will reach or exceed the breakeven point. If the pu
> Angelica Pickles is manager of a Quick Copy franchise in White Plains, New York. Pickles projects that by reducing copy charges from 5¢ to 4¢ each, Quick Copy's $600-per-week profit contribution will increase by one-third. a. If average variable costs ar
> Three graduate business students are considering operating a fruit smoothie stand in the Harbour Springs, Michigan, resort area during their summer break. This is an alternative to summer employment with a local firm, where they would each earn $6,000 ov
> South Park Software, Inc. produces innovative interior decorating software that it sells to design studios, home furnishing stores, and so on. The yearly volume of output is 15,000 units. Selling price and costs per unit are as follows:
> While net income is an obviously useful indicator of a firm’s profit-generating ability, it has equally obvious limitations. Net income will grow with a simple increase in the scale of the operation. A 2% savings account will display growing interest inc
> Indicate whether each of the following involves an upward or downward shift in the long-run average cost curve or, instead, involves a leftward or rightward movement along a given curve. Also indicate whether each will have an increasing, decreasing, or
> Untouchable Package Service (UPS) offers overnight package delivery to Canadian business customers. UPS has recently decided to expand its facilities to better satisfy current and projected demand. Current volume totals two million packages per week at
> The U.S. Bureau of the Census publishes employment statistics and demand forecasts for various occupations. a. Using a spreadsheet or hand-held calculator, calculate the ten-year growth rate forecast using the constant growth model with annual compoundi
> Appalachia Beverage Company, Inc. is considering alternative proposals for expansion into the Midwest. Alternative 1: Construct a single plant in Indianapolis, Indiana, with a monthly production capacity of 300,000 cases, a monthly fixed cost of $262,500
> Almost 2 million persons per year visit wondrous Glacier National Park. Due to the weather, monthly park attendance figures varied widely during a recent year: a. Notice that park attendance is lower in December than in January, despite a 42.4% average
> Toys Unlimited Ltd., must forecast sales for a popular adult computer game to avoid stockouts or excessive inventory charges during the upcoming Christmas season. In percentage terms, the company estimates that game sales fall at double the rate of price
> Environmental Designs, Inc., produces and installs energy- efficient window systems in commercial buildings. During the past ten years, sales revenue has increased from $25 million to $65 million. a. Calculate the company's growth rate in sales using the
> Mid-Atlantic Cinema, Inc., runs a chain of movie theaters in the east-central states and has enjoyed great success with a Tuesday Night at the Movies promotion. By offering half off its regular $9 admission price, average nightly attendance has risen fro
> Dorothy Gale, a quality-control supervisor for Wizard Products, Inc., is concerned about unit labor cost increases for the assembly of electrical snap-action switches. Costs have increased from $80 to $100 per unit over the previous three years. Gale thi
> Supersonic Industries, based in Seattle, Washington, manufactures a wide range of parts for aircraft manufacturers. The company is currently evaluating the merits of building a new plant to fulfill a new contract with the federal government. The alternat
> Profitability Effects of Firm Size for DJIA Companies Does large firm size, pure and simple, give rise to economic profits? This question has long been a source of great interest in both business and government, and the basis for lively debate over the
> Warren Buffett, chairman and CEO of Berkshire Hathaway, Inc., is an outspoken critic of executive-stock option plans, at least as they are commonly employed. In a typical stock-option plan, top executives are given the right to buy company stock at the c
> Shareholders face a daunting information asymmetry problem when it comes to measuring the performance of the CEO. As head of the corporation, the CEO is in charge of the firm’s management information system. Accounting methods always leave room for manag
> The Sarbanes-Oxley Act, named for sponsors Sen. Paul Sarbanes, D-Md., and Rep. Michael Oxley, R-Ohio, is the most sweeping law affecting corporations since the 1930s. It is having a dramatic effect on the costs companies pay for independent audits of the
> At the end of World War II, goods production and services provision were each responsible for roughly one-half of economic activity and total employment in the United States. Today, the provision of services is responsible for roughly two-thirds of emplo
> According to the Coase Theorem, resource allocation will be efficient so long as transaction costs remain low and property rights can be freely assigned and exchanged. a. Does the Coase Theorem imply that government has little if any role to play in the
> In 2002, Congress held hearings to investigate the collapse of Houston-based energy giant Enron Corp., aiming to discover how to protect against similar disasters. The spectacular implosion of Enron led to the largest corporate bankruptcy in U.S. history
> Describe each of the following factors as being responsible for increasing, decreasing, or having no effect on the amount of concentrated inside equity. Explain why. a. High research and development expenditure requirements b. A corporate history of poor
> Indicate whether each of the following transaction costs is explicit or implicit, and describe how it is a manifestation of a particular type of agency problem. a. A trader at an investment banking firm loses millions of corporate dollars through unsucce
> During the amazing bull market of the 1990s, an investment strategy of simply mimicking the Standard & Poor’s 500 Index became popular. The S&P 500 is a value-weighted market index of 500 common stocks thought to measure overall movement in the aggregate
> Several companies have learned that a well-funded and comprehensive employee benefits package constitutes an important part of the compensation plan needed to attract and retain key personnel. An employee stock ownership plan, profit-sharing arrangements
> Determine whether each of the following statements is true or false. Explain why. a. A vertical relation is a business connection between companies at the same point along the production-distribution chain. b. A work slowdown due to an unexpected strike
> Dunder-Mifflin, Inc., is analyzing the potential profitability of three printing jobs put up for bid by the State Department of Revenue: Assume that (1) the company’s marginal city-plus-state-plus-federal tax rate is 50%; (2) each job is expected to ha
> Cunningham’s Drug Store, a medium-size drugstore located in Milwaukee, Wisconsin, is owned and operated by Richard Cunningham. Cunningham’s sells pharmaceuticals, cosmetics, toiletries, magazines, and various novelties. Cunningham’s most recent annual ne
> Toby Amberville’s Manhattan Café, Inc., is considering investment in two alternative capital budgeting projects. Project A is an investment of $75,000 to replace working but obsolete refrigeration equipment. Project B is an investment of $150,000 to expa
> Louisiana Drilling and Exploration, Inc. (LD&E) has the funds necessary to complete one of two risky oil and gas drilling projects. The first, Permian Basin 1, involves the recovery of a well that was plugged and abandoned five years ago but that ma
> Suppose the Pacific Princess luxury cruise line is contemplating leasing an additional cruise ship to expand service from the Hawaiian Islands to Long Beach or San Diego. A financial analysis by staff personnel resulted in the following projections for a
> New York City licenses taxicabs in two classes: (1) for operation by companies with fleets and (2) for operation by independent driver-owners having only one cab. Strict limits are imposed on the number of taxicabs by restricting the number of licenses,
> Indicate whether each of the following would increase or decrease the cost of capital that should be used by the firm in investment project evaluation. Explain. a. Interest rates rise because the Federal Reserve System tightens the money supply. b. The
> The net present value (NPV), profitability index (PI), and internal rate of return (IRR) methods are often employed in project valuation. Identify each of the following statements as true or false, and explain your answers. a. The IRR method can tend to
> Eureka Membership Warehouse, Inc., is a rapidly growing chain of retail outlets offering brand-name merchandise at discount prices. A security analyst’s report issued by a national brokerage firm indicates that debt yielding 13% composes 25% of Eureka’s
> Cost estimation and cost containment are an important concern for a wide range of for-profit and not-for-profit organizations offering health-care services. For such organizations, the accurate measurement of costs per patient day (a measure of output) i
> Identify each of the following statements as true or false, and explain your answers. a. Information costs both increase the marginal cost of capital and reduce the internal rate of return on investment projects. b. Depreciation expenses involve no direc
> General Cereals, Inc. (GCI), produces and markets Sweeties!, a popular ready-to-eat breakfast cereal. In an effort to expand sales in the Secaucus, New Jersey, market, the company is considering a one-month promotion whereby GCI would distribute a coupon
> Prohibitions against predatory pricing stem from big business conspiracy theories popularized in the late nineteenth century by journalists such as Ida Tarbell, author of an influential book titled History of the Standard Oil Company. In that book, Tarbe
> Game theory can be used to analyse conflicts that arise between managers and workers. Managers can choose to monitor worker performance, or not monitor worker performance. For their part, workers can choose to perform the requested task within the time f
> In the United States any contract, combination or conspiracy in restraint of trade is illegal. In practice, this means it is against the law to control or attempt to control the quantity, price or exchange of goods and services. In addition to this legal
> The breakfast cereal industry is heavily concentrated. Kellogg, General Mills, General Foods (Post) and Ralcorp account for over 85 per cent of industry sales. Advertising by individual firms does not convince more people to eat breakfast. Effective adve
> The Home Depot, Inc., and the Lowes Companies are locked in a vicious struggle for market share in the home improvement market. Suppose each competitor is considering the advisability of offering 90-day free financing as a means for boosting sales during
> Conceive of two competitors facing important strategic decisions where the payoff to each decision depends upon the reactions of the competitor. Firm A can choose either row in the payoff matrix defined below, whereas firm B can choose either column. For
> The classic prisoner's dilemma involves two suspects, A and B, who are arrested by the police. Because the police have insufficient evidence for conviction on a key charge, they place the prisoners in isolation and offer each of them the following deal:
> Near the checkout stand, grocery stores and convenience stores prominently display low-price impulse items like candy, gum and soda that customers crave. Despite low prices, such products generate enviable profit margins for retailers and for the compan
> Traditional measures of firm productivity tend to focus on profit margins, the rate of return on stockholder’s equity, or related measures like total asset turnover, inventory turnover, or receivables turnover. Profit margin is net income divided by sale
> Recognize each of the following statements as being true or false and explain why. a. A set of strategies constitutes a Nash equilibrium if no player can improve their position given the strategies chosen by other players. b. A secure strategy is very co
> During recent years, MicroChips Corp. has enjoyed substantial economic profits derived from patents covering a wide range of inventions and innovations for microprocessors used in high-performance desktop computers. A recent introduction, the Penultimate
> Portland Fluid Control, Inc., (PFC) is a major supplier of reverse osmosis and ultrafiltration equipment, which helps industrial and commercial customers achieve improved production processes and a cleaner work environment. The company has recently intro
> The Organization of the Petroleum Exporting Countries (OPEC) was formed on September 14, 1960 in Baghdad, Iraq. The current membership is comprised of five founding members plus six others: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, S
> The Onondaga County Resource Recovery (OCRRA) system assumed responsibility for solid waste management on November 1, 1990, for thirty-three of the thirty-five municipalities in Onondaga County, New York. OCRRA is a non-profit public benefit corporation
> Calvin’s Barber Shops, Inc. has a monopoly on barbershop services provided on the south side of Chicago because of restrictive licensing requirements, and not because of superior operating efficiency. As a monopoly, Calvin’s provides all industry output.
> In a celebrated case tried during 1998, The Department of Justice charged Microsoft Corporation with a wide range of anti-competitive behavior. Among the charges leveled by the DOJ was the allegation that Microsoft illegally “bundled” the sale of its Mic
> An antitrust case launched more than a decade ago sent tremors throughout the academic community. Over the 1989 -91 period, the Department of Justice (DOJ) investigated a number of highly selective private colleges for price fixing. The investigation foc
> On May 12, 2000, the two daily newspapers in Denver, Colorado, filed an application with the U.S. Department of Justice for approval of a joint operating agreement. The application was filed by The E.W. Scripps Company, whose subsidiary, the Denver Publ
> The long-run supply curve for a given competitive firm can be written as QF= -250 + 8P or P = $31.25 + $0.125QF. Explain why the amount supplied by 50 such competitors is determined by multiplying the first expression by 50 rather than by multiplying the
> Courtney-Cox, Inc., is a Texas-based manufacturer and distributor of components and replacement parts for the auto, machinery, farm, and construction equipment industries. The company is presently funding a program of capital investment that is necessary
> Project Valuation. The Central Perk Coffee House, Inc., is engaged in an aggressive store refurbishing program and is contemplating expansion of its in-store baking facilities. This investment project is to be evaluated using the certainty equivalent adj
> Safecard Corporation offers a unique service. The company notifies credit card issuers after being informed that a subscriber's credit card has been lost or stolen. The Safecard service is sold to card issuers on an annual subscription basis. Relevant re
> Monopolistically Competitive Equilibrium. Soft Lens, Inc., has enjoyed rapid growth in sales and high operating profits on its innovative extended-wear soft contact lenses. However, the company faces potentially fierce competition from a host of new comp
> Optimal Input Usage. Medical Testing Labs, Inc., provides routine testing services for blood banks in the Los Angeles area. Tests are supervised by skilled technicians using equipment produced by two leading competitors in the medical equipment industry
> The benefit-cost approach first surfaced in France during 1844. In this century, benefit-cost analysis has been widely used in the evaluation of river and harbor projects since as early as 1902. In the United States, the 1936 Flood Control Act authorized
> Anthony Soprano is head of Satriale Pork Producers, Inc., a family-run pork producer with a hog-processing facility in Musconetcong, New Jersey. Each hog processed yields both pork and a render by-product in a fixed 1:1 ratio. Although the by-product is
> Production Function Estimation. Washington-Pacific, Inc., manufactures and sells lumber, plywood, veneer, particle board, medium-density fiberboard, and laminated beams. The company has estimated the following multiplicative production function for basic
> Bob Sponge has been retained to analyze two proposed capital investment projects, projects X and Y, by Square Pants, Inc., a local specialty retailer. Project X is a sophisticated working capital and inventory control system based upon a powerful persona
