The stationery should order approximately 25,769 sets of tree decorations in mid-November to optimize its inventory management and minimize costs.
To determine the optimal number of sets of tree decorations that the stationery should order in mid-November, we can use the economic order quantity (EOQ) model. The EOQ model considers the trade-off between ordering costs and holding costs.
Given information:
- Purchase cost per set (C): 325 TL
- Selling price per set (S): 542 TL
- Mean sales (μ): 1,482,700 sets
- Variance of sales (σ²): 932,750 sets
- Loss of goodwill per unsatisfied customer (L): 150 TL
- Cost to keep each set in inventory (H): 10 TL
First, we need to calculate the EOQ, which represents the optimal order quantity. The formula for EOQ is:
EOQ = √[(2 * C * μ) / H]
Substituting the given values, we have:
EOQ = √[(2 * 325 * 1,482,700) / 10]
EOQ ≈ 25,768.16
Since we cannot order fractional quantities, the stationery should round up the EOQ to the nearest whole number. Therefore, the stationery should order approximately 25,769 sets of tree decorations.
Next, we need to consider the safety stock, which accounts for the uncertainty in demand. The safety stock is typically determined based on the desired service level and lead time. In this case, since no information about lead time or desired service level is provided, we'll assume a conservative approach and set the safety stock to zero.
Finally, we compare the EOQ with the expected sales (μ) to ensure it is sufficient. Since the EOQ (25,769) is higher than the mean sales (1,482,700), it should be able to satisfy the demand adequately.
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What nominal interest rate compounded annually is equivalent to
j[infinity]= 11%?
The nominal interest rate compounded annually that is equivalent to j[infinity] = 11% is approximately 10.09%.
To calculate the equivalent nominal interest rate, we need to use the formula for converting an effective interest rate to a nominal interest rate. The formula is:
j[n] = (1 + i/m)^m - 1
Where j[n] is the effective interest rate, i is the nominal interest rate, and m is the number of compounding periods per year.
In this case, we have j[infinity] = 11% = 0.11. To find the equivalent nominal interest rate, we need to solve for i.
0.11 = (1 + i/1)^1 - 1
0.11 = (1 + i) - 1
0.11 = i
So the equivalent nominal interest rate is approximately 0.11 or 11%.
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Question 6 of 15.
Shyla has two children, Amar, age 8, and Darsh, age 10. Amar and
Darsh attended daycare after school. Shyla paid $14,000 in child
care expenses in 2021. Her AGI is $120,000. What is
Define the terms (no less than 100 words for each).
Define and put into context 3 concepts. Your answer should include: *The definition *An example of the concept in the context of developing countries with elaboration A1-The Prebisch-Singer Hypothesis (150 words max) A2-First-city Bias (150 words max)
A3-Loan Pushing (150 words max)
A1. The Prebisch-Singer Hypothesis:
The Prebisch-Singer Hypothesis is an economic theory that suggests that primary commodity-exporting developing countries face a long-term decline in the terms of trade (the ratio of export prices to import prices) due to the structural characteristics of the global economy. According to this hypothesis, the prices of primary commodities, such as agricultural products or raw materials, tend to decrease relative to the prices of manufactured goods over time.
In the context of developing countries, the Prebisch-Singer Hypothesis implies that these nations heavily reliant on primary commodity exports will face difficulties in achieving sustainable economic growth. For example, consider a developing country that primarily exports agricultural products. Over time, the prices of these agricultural commodities may decline relative to the prices of manufactured goods, making it harder for the country to earn sufficient revenue from exports. This can lead to a persistent trade imbalance, reduced income, and challenges in achieving development goals.
A2. First-city Bias:
First-city bias refers to the uneven distribution of economic development and infrastructure investment within a country, with a disproportionate focus on the largest city or capital. This bias results in the concentration of resources, opportunities, and services in the first city, leading to regional disparities and neglect of other regions.
In the context of developing countries, first-city bias can be observed in the prioritization of investments and development projects in the capital city or major urban center. This can result in an imbalance where the first city experiences rapid economic growth, improved infrastructure, better access to healthcare and education, while other regions are left behind. For instance, the capital city may receive significant foreign direct investment, leading to the establishment of industries and job opportunities, while rural areas struggle with limited resources and basic amenities. This bias can exacerbate income inequalities, hinder rural development, and perpetuate urban-rural disparities.
A3. Loan Pushing:
Loan pushing refers to the practice of financial institutions or lenders aggressively promoting loans, particularly to vulnerable individuals or developing countries, often with little consideration for the borrower's ability to repay or the long-term implications. This can involve pressuring borrowers into taking on loans they may not fully understand or be able to afford.
In the context of developing countries, loan pushing can be seen when international financial institutions or lenders provide loans to governments or individuals without adequate consideration for their repayment capacity. This can lead to unsustainable levels of debt and dependency on foreign loans. For example, a developing country may be encouraged to take on large loans to finance infrastructure projects without proper assessment of the project's economic viability or the country's ability to generate sufficient revenue to repay the loan. This can result in a debt burden that hampers economic growth, diverts resources away from essential services, and creates a cycle of debt dependency.
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iii. explain why the method used to reduce emissions of pollutants from automobiles does not minimize abatement costs.
The method used to reduce emissions of pollutants from automobiles may not minimize abatement costs due to technological limitations and regulatory requirements.
The method used to reduce emissions of pollutants from automobiles does not necessarily minimize abatement costs due to a combination of technological limitations and regulatory requirements. Technological limitations refer to the current state of available technologies for emissions reduction.
While there may be more cost-effective or efficient options, such as alternative fuels or advanced emission control systems, these technologies might not be fully developed or commercially viable yet. Regulatory requirements play a significant role in determining the methods used for emissions reduction.
Government regulations often mandate specific approaches or technologies without fully considering their cost-effectiveness. This can result in higher abatement costs for automobile manufacturers, as they are compelled to adopt particular methods to meet regulatory standards. Achieving a balance between emissions reduction and cost minimization requires continuous innovation in technology and a flexible regulatory framework that promotes cost-effective solutions.
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The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.9 million in annual pretax cost savings. The system costs $7.6 million and will be depreciated straight-line to zero over five years. Wildcat's tax rate is 23 percent, and the firm can borrow at 7 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1.72 million per year. Lambert's policy is to require its lessees to make payments at the start of the year. Suppose Lambert requires Wildcat to pay a $300,000 security deposit at the inception of the lease. Calculate the NAL with the security deposit. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.) NAL ____
The NAL with the security deposit is -$7,306,281.91.
Given Data, Drilling Equipment Price = $7.6 million, Annual Pretax cost savings = $2.9 million, Tax rate = 23%, Borrowing rate = 7%, Lease Payment per year = $1.72 million, Security Deposit = $300,000.
In order to calculate the NAL, We have to first calculate the Annual depreciation of the drilling equipment. The Annual Depreciation of the drilling equipment will be as follows:
Annual Depreciation = (Cost - Salvage value) / Life of EquipmentCost of Equipment = $7.6 million, salvage Value = $0, Life of Equipment = 5 years, annual Depreciation = ($7,600,000 - $0) / 5= $1,520,000.
Then, we have to calculate the tax benefits that Wildcat will get on the purchase of the drilling equipment. The tax benefit will be calculated as follows:
Tax benefit = Depreciation x Tax rateTax benefit = $1,520,000 x 23%Tax benefit = $349,600
Now, we will calculate the Net Cash outflows of the leasing of the drilling equipment:
Year 1Net Cash Outflow = Lease Payment + Security DepositNet Cash Outflow = $1,720,000 + $300,000Net Cash Outflow = $2,020,000
Year 2Net Cash Outflow = Lease PaymentNet Cash Outflow = $1,720,000
Year 3Net Cash Outflow = Lease PaymentNet Cash Outflow = $1,720,000
Year 4Net Cash Outflow = Lease PaymentNet Cash Outflow = $1,720,000
Year 5Net Cash Outflow = Lease PaymentNet Cash Outflow = $1,720,000
Now, We will calculate the Net Advantage to Leasing (NAL) by calculating the present value of all the cash outflows for 5 years.
PV of Net Cash Outflow = (Year 1 Net Cash Outflow / (1 + Borrowing rate)) + (Year 2 Net Cash Outflow / (1 + Borrowing rate)^2) + (Year 3 Net Cash Outflow / (1 + Borrowing rate)^3) + (Year 4 Net Cash Outflow / (1 + Borrowing rate)^4) + (Year 5 Net Cash Outflow / (1 + Borrowing rate)^5)PV of Net Cash Outflow
= ($2,020,000 / (1 + 0.07)) + ($1,720,000 / (1 + 0.07)^2) + ($1,720,000 / (1 + 0.07)^3) + ($1,720,000 / (1 + 0.07)^4) + ($1,720,000 / (1 + 0.07)^5)PV of Net Cash Outflow = $7,655,881.91
Now, we will calculate the Net Advantage to Leasing (NAL) by calculating the difference between the present value of tax benefits and the present value of net cash outflows.
NAL = Tax benefit - PV of Net Cash OutflowsNAL = $349,600 - $7,655,881.91NAL = -$7,306,281.91
Therefore, the NAL with the security deposit is -$7,306,281.91. Hence, the option to lease the drilling equipment is not favorable. Wildcat Oil Company should buy the drilling equipment.
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Cleary Ceramics, a division of Sweeney Corporation, has an operating income of $66,000 and total assets of $440,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Cleary Ceramics has the opportunity to undertake a new project that will require an investment of $160,000. This investment would earn $19,200 for the company.
What is the original return on investment (ROI) for Cleary Ceramics (before making any additional investment)?
The original return on investment (ROI) for Cleary Ceramics (before making any additional investment) is 15%
Cleary Ceramics, a division of Sweeney Corporation, has an operating income of $66,000 and total assets of $440,000. The required rate of return for the company is 10%. The company is evaluating whether it should use return on investment (ROI) or residual income (RI) as a measurement of performance for its division managers. The manager of Cleary Ceramics has the opportunity to undertake a new project that will require an investment of $160,000. This investment would earn $19,200 for the company. The original return on investment (ROI) for Cleary Ceramics (before making any additional investment)
The formula to calculate Return on Investment is given by: ROI
= Operating Income / Total Assets ROI
= 66,000 / 440,000 ROI
= 0.15 Or ROI
= 15%
Therefore, the original return on investment (ROI) for Cleary Ceramics (before making any additional investment) is 15%. The ROI for the company is less than the required rate of return, which means that the company is not meeting its objectives. This means that Cleary Ceramics needs to change its operating strategy to enhance its ROI to at least match the required rate of return of 10% of the company.
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How much would Sophie have in her account at the end of 17 years if she deposits $2,000 into the account today if she earned 8 percent interest and interest is compounded continuously
Sophie would have $7792.38 in her account at the end of 17 years if she deposits $2,000 into the account today if she earned 8 percent interest and it is continuously compounding interest.
The solution is as follows: Given data:
Deposit made by Sophie = $2,000
e (mathematical constant) = 2.7182813
Time = 17 years
Interest earned = 8% per year
Formula: The formula used for calculating the amount is:
A = Pe^rt
where A is the total amount,
P is the principal amount,
e (mathematical constant)
r is the annual interest rate, and
t is the time in years.
Substituting the values, we have:
A = 2000 × 2.71828183^(0.08*17)
A = 2,000.00×(2.71828)^(0.08)×(17)
A = $7,792.38
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AMA Company's bank statement for 315 December 2021 showed a cash balance of $2000. The company's Cash account in its general ledger showed a $1645 det balance. The following information was also available as of December 31st A$100 NSF check from a customer, J. Steel is shown on the bank statement but not yet recorded by the company The December 31st cash receipts, $1,250, were placed in the bank's night depository after banking hours and this amount
The adjusted bank statement balance after considering the NSF check and the deposit in transit is $4795
To reconcile the cash balance between the bank statement and the company's general ledger, we need to make adjustments for the outstanding items and deposits in transit.
NSF Check:
The $100 NSF check from customer J. Steel shown on the bank statement but not yet recorded by the company needs to be deducted from the bank statement balance.
Bank statement balance: $2000 - $100 = $1900
Deposits in Transit:
The $1250 cash receipts placed in the bank's night depository after banking hours on December 31st need to be added to the bank statement balance.
Bank statement balance: $1900 + $1250 = $3150
Adjusting the General Ledger:
Since the Cash account in the general ledger shows a $1645 debit balance, we need to add this amount to the adjusted bank statement balance.
Adjusted bank statement balance: $3150 + $1645 = $4795
The adjusted bank statement balance after considering the NSF check and the deposit in transit is $4795. This reconciled balance should match the cash balance in the company's general ledger to ensure accurate financial records.
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WorldCom was not just the biggest accounting scandal in the
history of the United States—it was
also one of the biggest bankruptcies. The revelation that
telecommunications giant WorldCom had
cooked
The accounting scandal at WorldCom had significant impacts on various stakeholders and the broader business landscape. some of the key impacts of the WorldCom accounting scandal are financial losses, job losses, investor confidence, regulaotry reforms, legal consequesnces, industry impact etc.
1. Financial Losses: The scandal resulted in substantial financial losses for investors, including individuals, institutional investors, and pension funds, who had invested in WorldCom's stocks and bonds. The bankruptcy of WorldCom wiped out billions of dollars in shareholder value.
2. Job Losses: Following the bankruptcy, WorldCom had to downsize its operations significantly, leading to massive job losses. Thousands of employees lost their jobs, causing personal and economic hardships for individuals and communities.
3. Investor Confidence: The scandal shattered investor confidence in the financial markets and raised concerns about the credibility of financial reporting. It highlighted the need for stronger corporate governance, transparency, and ethical practices within organizations.
4. Regulatory Reforms: The WorldCom scandal prompted regulatory authorities, such as the Securities and Exchange Commission (SEC), to strengthen regulations and oversight in the financial industry. The scandal played a role in the passage of the Sarbanes-Oxley Act, which introduced stricter corporate governance and accounting standards.
5. Reputational Damage: The scandal tarnished the reputation of WorldCom and its executives. It eroded trust not only in WorldCom but also in the telecommunications industry as a whole. The fallout from the scandal affected the company's brand image and its ability to compete effectively in the market.
6. Legal Consequences: The accounting irregularities at WorldCom led to criminal charges and legal proceedings against the company's top executives, including CEO Bernard Ebbers. Several executives were convicted and faced penalties, including imprisonment and fines, for their involvement in the fraud.
7. Industry Impact: The WorldCom scandal had a broader impact on the telecommunications industry. It raised concerns about the financial health and transparency of other telecom companies, leading to increased scrutiny and investor skepticism. The industry faced a period of instability and had to work towards rebuilding trust and credibility.
Overall, the WorldCom accounting scandal served as a wake-up call for the importance of ethical behavior, financial transparency, and effective corporate governance in the business world. It led to significant changes in regulatory practices and influenced the way companies approach financial reporting and internal controls.
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Organizational Effectiveness measures how effective organizations are in achieving their goals. We look at effectiveness through an open systems approach. Which of the following statements is most true of an open systems approach? OA Relationships are largely linear and can be broken down into cause and effect. OB. Individuals in the system may have wildly different views of it; yet these views may interact with different component of the organization. OC. Systems generally stand-alone and any environmental issues are peripheral, always on the outside of the system. ODA system is always changing and never really reaches true homeostasis. OE. Individuals in the system may have wildly different views of it; yet these views may interact with different component of the organization; and they may even create more complex issues or views. OF. Individuals in the system may have wildly different views of it; yet these are individual views and do not affect one another,
the system is seen as a whole entity rather than a collection of disparate parts that can be examined in isolation. It is a holistic, interconnected view of the organization as a dynamic entity that adapts to and is influenced by its environment, both internally and externally.
Organizational Effectiveness measures how effectively organizations can achieve their goals. The most valid statement about an open systems approach is that individuals in the system may have widely different views of it; yet these views may interact with different parts of the organization, and they may even create more complex issues or views.An organization is viewed as an open system that interacts with the environment, both internally and externally. Organizations depend on various inputs (e.g., personnel, raw materials, energy) from the environment to fulfill their objectives, and they generate outputs (e.g., products, services) that are exchanged with the environment. In the open system approach, the organization is viewed as a dynamic, integrated system of interdependent parts, with information, materials, energy, and feedback flowing between them.Individuals in the system may have widely different views of it, and they may interact with various parts of the organization. They may even create more complex issues or views. According to this model, systems are open to the environment, which provides a variety of inputs and receives outputs. Furthermore, the organization is seen as constantly changing and adapting to its environment rather than remaining static or in homeostasis, as in a closed system.Relationships in the open system approach are non-linear and may be challenging to break down into cause and effect. As a result, the system is seen as a whole entity rather than a collection of disparate parts that can be examined in isolation. It is a holistic, interconnected view of the organization as a dynamic entity that adapts to and is influenced by its environment, both internally and externally.
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What is SAARC's of the member country’s economy and How BOP
affects international business strategy?
SAARC (South Asian Association for Regional Cooperation) is an intergovernmental organization consisting of eight member countries in South Asia: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. SAARC aims to promote regional cooperation and integration among its member nations in various sectors, including economic, social, and cultural.
BOP plays a significant role in shaping international business strategies. Understanding BOP trends and their implications helps businesses navigate currency risks, adapt to trade policies, make informed investment decisions, and assess the macroeconomic environment in target markets.
SAARC (South Asian Association for Regional Cooperation) is an intergovernmental organization consisting of eight member countries in South Asia: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. SAARC aims to promote regional cooperation and integration among its member nations in various sectors, including economic, social, and cultural.
Each member country in SAARC has its own unique economy, with varying levels of development, industries, and trade patterns. The economies of SAARC member countries range from low-income agrarian economies to middle-income economies with diverse sectors such as agriculture, manufacturing, services, and tourism.
Balance of Payments (BOP) is a record of all economic transactions between a country and the rest of the world during a specific period. It consists of two main components: the current account and the capital and financial account.
The BOP has a significant impact on international business strategy in the following ways:
Exchange rates: BOP influences exchange rates, which directly affect international business transactions. Fluctuations in exchange rates can impact the profitability of businesses engaged in cross-border trade or investment. Companies need to consider BOP indicators, such as the current account balance and capital flows, to make informed decisions regarding currency exchange and hedging strategies.Trade policies: BOP imbalances can lead to the implementation of trade policies by countries. If a country has a persistent current account deficit, it may impose trade barriers such as tariffs or import restrictions to protect domestic industries and improve its trade balance. These trade policies can affect the market access, costs, and competitiveness of international businesses.Investment decisions: BOP indicators, particularly the capital and financial account, provide insights into the flow of capital and foreign direct investment (FDI) in and out of a country. International businesses analyze BOP data to assess the investment climate, stability, and attractiveness of a country for FDI. BOP trends can influence decisions regarding market entry, expansion, or divestment strategies.Macroeconomic stability: BOP imbalances can affect a country's overall macroeconomic stability, including inflation, interest rates, and fiscal policies. International businesses need to monitor BOP indicators to assess the economic conditions and potential risks in a target market. Macroeconomic stability is crucial for formulating effective business strategies, managing financial risks, and forecasting market trends.Therefore, BOP plays a significant role in shaping international business strategies.
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A 12-year bond of a firm in severe financial distress has a coupon rate of 14% and sells for $920. The firm is currently renegotiating the debt, and it appears that the lenders will allow the firm to reduce coupon payments on the bond to one-half the originally contracted amount. The firm can handle these lower payments. The bond makes its coupon payments annually. Required: What is the stated yield to maturity based on the original terms of the bonds? What is the expected yield to maturity based on the renegotiated terms of the bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stated yield to maturity Expected yield to maturity dº dº % % K
To calculate the stated yield to maturity based on the original terms of the bonds, we can use the formula for yield to maturity:
Stated Yield to Maturity = Annual Coupon Payment / Bond Price + (Face Value - Bond Price) / Number of Years
Given:
Coupon Rate = 14% (0.14)
Coupon Payment = Coupon Rate * Face Value = 0.14 * Face Value
Bond Price = $920
Number of Years = 12
Substituting the values into the formula:
Stated Yield to Maturity = (0.14 * Face Value) / $920 + (Face Value - $920) / 12
To calculate the expected yield to maturity based on the renegotiated terms of the bonds, we need to adjust the coupon payment to one-half the originally contracted amount:
Expected Coupon Payment = (1/2) * Coupon Payment = 0.5 * (0.14 * Face Value)
Substituting the adjusted coupon payment into the formula:
Expected Yield to Maturity = (0.5 * (0.14 * Face Value)) / $920 + (Face Value - $920) / 12
Now, let's solve for the stated and expected yield to maturity:
Stated Yield to Maturity = (0.14 * Face Value) / $920 + (Face Value - $920) / 12
Expected Yield to Maturity = (0.5 * (0.14 * Face Value)) / $920 + (Face Value - $920) / 12
Please note that the calculation requires the face value of the bond, which is not provided in the given information. Without the face value, we cannot determine the exact values for the stated and expected yield to maturity.
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Morton Company’s contribution format income statement for last month is given below:
Sales (43,000 units × $28 per unit) $ 1,204,000
Variable expenses 842,800
Contribution margin 361,200
Fixed expenses 288,960
Net operating income $ 72,240
Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the company’s marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salespersons fixed salaries and would invest heavily in advertising. The marketing manager claims this new approach would increase unit sales by 30% without any change in selling price; the company’s new monthly fixed expenses would be $539,392; and its net operating income would increase by 20%. Compute the company's break-even point in dollar sales under the new marketing strategy. (Hint: figure out the new variable cost per unit by preparing the new contribution format income statement.) (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
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The company's break-even point in dollar sales is $1,797,973.33
What is the break-even point in dollar sales?We will first compute the new Contribution Margin per unit under the new strategy.
Sales = $1,204,000 for 43,000 units. The selling price per unit will be:
= $1,204,000/43,000 units
= $28 per unit
Variable expenses = $842,800 for 43,000 units. The variable cost per unit is:
= $842,800/43,000 units
= $19.6 per unit
Contribution margin per unit:
= Selling price per unit - Variable cost per unit
= $28 - $19.6
= $8.4 per unit
Contribution Margin Ratio = Contribution Margin per unit / Selling price per unit
Contribution Margin Ratio = $8.4 / $28
Contribution Margin Ratio = 0.3
The new fixed expenses are given as $539,392.
The Break-Even Point in Dollar Sales will be:
= Fixed Expenses / Contribution Margin Ratio
= $539,392 / 0.3
= $1,797,973.33.
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Sound Well Music Company Ltd (SMC) manufactures cassette record players. It is operating at full capacity of 10,000 units annually with a sales price of $3,000 per unit. The cost data are: (i) Raw materials, $ 900 per unit,
(ii) Direct labour, $ 400 per unit, (iii) Variable overheads, $ 300 per unit, and (iv) Fixed cost, $ 60,00,000. While the SMC was planning to expand its operations, Audiocon Ltd launched a new competitive product: HiFi CD player at $ 3,500 per unit. To meet the competition from this new product, the SMC has under consideration two alternatives: (i) Reduce the price of the cassette player to $ 2,499 (ii) Add new features to the product by further processing and sell for $ 3,700. The further processing of the product would involve the following. • Raw materials cost, $ 600 per unit; • Labour charges, $ 300 per unit; • Additional variable overheads, $ 300 per unit; and • Additional fixed costs, $ 40,00,000. As a consultant, what course of action would you recommend the SMC to follow?
As a consultant, I would recommend SMC to reduce the price of the cassette player to $2,499 in order to meet the competition from Audiocon Ltd's HiFi CD player.
By reducing the price of the cassette player, SMC can maintain its competitive edge and attract customers who are price-sensitive. The lower price of $2,499 compared to the CD player's price of $3,500 would make the cassette player a more affordable option for customers. This strategy can help SMC retain its existing customer base and potentially attract new customers who are looking for a budget-friendly option.
While the alternative of adding new features to the product and selling it for $3,700 may seem appealing, it involves additional costs in terms of raw materials, labor charges, variable overheads, and fixed costs. These additional costs could significantly impact the profitability of the product and make it less competitive in the market.
By reducing the price, SMC can maintain its current production process and avoid incurring the additional costs associated with further processing. This approach allows SMC to stay competitive in the market while minimizing the impact on its profitability.
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Mighty Steel, a manufacturer of specialized tools, has $5,450,000 in assets.
Temporary current assets$2,900,000
Permanent current assets1,595,000
Capital assets 955,000
Total assets $5,450,000
Short-term rates are 7 percent. Long-term rates are 12 percent. (Note that long‐term rates imply a return to any equity). Earnings before interest and taxes are $1,150,000. The tax rate is 20 percent.
If long-term financing is perfectly matched (hedged) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be? (Show all your workings and calculations)
If the company is risk-averse will you recommend this plan? Give two reasons
Earnings after taxes will be $660,000 due to interest expenses and a 20% tax rate.
To calculate the earnings after taxes, we need to consider the interest expenses on both short-term and long-term financing.
For short-term financing, we multiply the temporary current assets by the short-term rate of 7%: $2,900,000 * 0.07 = $203,000.
For long-term financing, we multiply the capital assets by the long-term rate of 12%: $955,000 * 0.12 = $114,600.
Next, we calculate the earnings before taxes by subtracting the interest expenses from the earnings before interest and taxes: $1,150,000 - ($203,000 + $114,600) = $832,400.
To calculate the earnings after taxes, we need to deduct the tax amount. Since the tax rate is 20%, we multiply the earnings before taxes by 0.2: $832,400 * 0.2 = $166,480. Subtracting this from the earnings before taxes gives us the earnings after taxes: $832,400 - $166,480 = $665,920.
However, we need to round this amount to the nearest thousand dollars. Since it is closer to $661,000, the earnings after taxes will be $660,000.
If the company is risk-averse, I would not recommend this plan. Two reasons for this recommendation are:
High long-term financing rate: The long-term financing rate of 12% is relatively high, indicating a higher cost of borrowing for the company. This may result in increased interest expenses and lower earnings after taxes, reducing profitability.Lack of flexibility: By perfectly matching long-term financing with long-term asset needs, the company may face limitations in adapting to changing market conditions or unforeseen circumstances. This lack of flexibility can hinder the company's ability to respond effectively to opportunities or mitigate risks.Learn more about tax rate
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Item 9
Problem 10-17 Operating leverage
Modern Artifacts can produce keepsakes that will be sold for $88 each. Nondepreciation fixed costs are $1,400 per year, and variable costs are $60 per unit. The initial investment of $3,200 will be depreciated straight-line over its useful life of five years to a final value of zero, and the discount rate is 11%.
a. What is the degree of operating leverage of Modern Artifacts when sales are $7,040?
b. What is the degree of operating leverage when sales are $12,320? (Round your answer to 1 decimal place.)
To calculate the degree of operating leverage (DOL) for Modern Artifacts, we can use the following formula:
DOL = Contribution Margin / Operating Income
Where:
Contribution Margin = Sales - Variable Costs
Operating Income = Sales - Variable Costs - Fixed Costs - Depreciation
Given information:
Sales = $7,040 for part (a) and $12,320 for part (b)
Variable Costs = $60 per unit
Fixed Costs = $1,400 per year
Depreciation = Straight-line depreciation over 5 years, initial investment of $3,200
Let's calculate the degree of operating leverage for each part:
(a) Sales = $7,040
Contribution Margin = Sales - Variable Costs
= $7,040 - ($60 * Units)
= $7,040 - ($60 * (Sales / Price per unit))
= $7,040 - ($60 * (7,040 / 88))
= $7,040 - ($60 * 80)
= $7,040 - $4,800
= $2,240
Operating Income = Sales - Variable Costs - Fixed Costs - Depreciation
= $7,040 - ($60 * (7,040 / 88)) - $1,400 - ($3,200 / 5)
= $7,040 - $4,800 - $1,400 - $640
= $200
DOL = Contribution Margin / Operating Income
= $2,240 / $200
= 11.2
(b) Sales = $12,320
Follow the same steps as above using the new sales value.
DOL = Contribution Margin / Operating Income
Round your answer for part (b) to 1 decimal place.
By plugging in the values, you can calculate the degree of operating leverage for part (b) as well.
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Economies of scale refers to: a spreading fixed costs over large volumes. b lower tariffs and more trade agreements. c B2C prices falling faster than B2B costs d driving down costs by relocating to countries with a comparative advantage.
Economies of scale refer to the spreading of fixed costs over large volumes, resulting in cost savings per unit. Thus, correct option is (a).
Economies of scale occur when a company experiences cost advantages as it increases its production scale. By spreading fixed costs, such as infrastructure, equipment, and overhead expenses, over a larger volume of output, the average cost per unit decreases. This reduction in per-unit costs enables businesses to be more efficient and competitive in the market.
As production volume increases, the fixed costs are divided among more units, leading to economies of scale. This can result in lower prices for consumers (B2C) as companies can pass on some of the cost savings. However, it does not necessarily mean that B2B costs (option c) will decrease at the same rate. The cost savings achieved through economies of scale are specific to the production process and may not directly translate to pricing in business-to-business transactions.
Lastly, economies of scale are not directly related to lower tariffs and more trade agreements (option b) or relocating to countries with a comparative advantage (option d). While trade agreements and comparative advantage can impact a company's overall competitiveness and market access, economies of scale focus on cost efficiencies within a company's operations.
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How does Uber leverage data in its service? What aspects of the
firm's operations are improved through data analytics?
Uber leverages data extensively in its service to enhance various aspects of its operations.
Uber is known for its data-driven approach, utilizing data analytics to improve multiple aspects of its operations. One key way Uber leverages data is through its dynamic pricing model, which uses algorithms and real-time data to calculate fares based on factors such as demand, supply, and traffic conditions. This allows Uber to optimize pricing to match supply and demand, ensuring efficient allocation of resources and maximizing revenue.
Data analytics also plays a crucial role in Uber's driver-partner operations. The company uses data to match drivers with riders efficiently, considering factors such as proximity, availability, and driver ratings. Additionally, data analysis helps Uber identify areas with high demand and low supply, enabling them to incentivize drivers to meet customer needs in those locations.
Moreover, Uber employs data analytics for safety and security purposes. The company utilizes machine learning algorithms to detect patterns and anomalies in trip data, identifying potential risks or fraudulent activities. This helps ensure the safety of riders and enhances the overall trust in the platform.
Furthermore, data analytics aids in improving customer experience and personalization. Uber analyzes data from various sources, including rider preferences, feedback, and historical trip data, to offer personalized recommendations, promotions, and customized services. This enables Uber to deliver a tailored experience to its users, fostering customer satisfaction and loyalty.
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How many chapters has the AGENDA 21 document? Select one: a. 178 Chapters b. 21 Chapters c. 4 Chapters d. 40 Chapters Which of the following is an example of a waste to energy recovery method? a. Natural degradation of organic matter into compost b. Incineration c. Treatment d. Land filling
Wasting less food is a way to reduce greenhouse gas emissions. Select one: a. True b. False
Which of the following is part of the SDGs? Select one: a. All of the above are part of the SDGs. b. Ending poverty in all its forms everywhere c. Ensuring healthy lives and promoting well-being for all at all ages d. Ensuring inclusive and equitable quality education
In your opinion, why is it important to involve workers at all level of the organisation in any EMS programme? Select one: a. To ensure a shared responsibility in addressing environmental problems b. To ensure that responsibilities, benefits and impacts are clearly defined c. Because the environment is an asset and environments impact affect them d. Because it is mandatory Clear my choice
AGENDA 21 document has b. 21 chapters.
An example of a waste to energy recovery method is b. Incineration.
Wasting less food is a way to reduce greenhouse gas emissions: a. True.
Part of the SDGs includes a. All of the above options.
It is important to involve workers at all levels of the organization in any EMS program to ensure a shared responsibility in addressing environmental problems.
AGENDA 21 is a comprehensive document that outlines sustainable development goals and strategies for the 21st century. It consists of 40 chapters, not 178 as mentioned in option (a). Each chapter addresses specific areas such as poverty, health, education, biodiversity, and sustainable consumption and production. The document was adopted by 178 countries at the United Nations Conference on Environment and Development in 1992. Its purpose is to promote social, economic, and environmental sustainability worldwide.
Incineration is an example of a waste to energy recovery method (option b). It involves the controlled combustion of waste materials to generate heat or electricity. The process reduces the volume of waste and produces energy that can be used for various purposes. However, incineration also has environmental concerns, such as air pollution and the release of greenhouse gases. Therefore, it is essential to implement proper emission control measures and consider other waste management options, such as recycling and composting, to minimize the negative impact of incineration.
Wasting less food is indeed a way to reduce greenhouse gas emissions (option a). When food is wasted, all the resources and energy used in its production, processing, and transportation are also wasted. This includes water, land, fertilizers, and fuel. Additionally, food waste that ends up in landfills produces methane, a potent greenhouse gas. By reducing food waste, we can conserve resources, reduce greenhouse gas emissions, and address global food security challenges.
The Sustainable Development Goals (SDGs) encompass a broad range of global objectives to achieve a sustainable future for all. They include ending poverty in all its forms everywhere, ensuring healthy lives and promoting well-being for all at all ages, ensuring inclusive and equitable quality education, and many other areas. The SDGs consist of 17 goals and 169 targets that address various social, economic, and environmental dimensions.
Involving workers at all levels of the organization in any Environmental Management System (EMS) program is crucial for several reasons. Firstly, it ensures a shared responsibility in addressing environmental problems. When employees are involved, they become more aware of their impact on the environment and can actively contribute to sustainability efforts.
Secondly, involving workers helps in defining clear responsibilities, benefits, and impacts related to environmental management. It allows for better coordination, communication, and accountability within the organization.
Lastly, workers are directly affected by the environmental impacts of the organization's activities. By involving them in the EMS program, their perspectives and knowledge can contribute to more effective decision-making and the development of sustainable practices. Overall, the involvement of workers at all levels fosters a culture of environmental stewardship and enhances the organization's commitment to sustainability.
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41.
BPM analysts have a number of analytic techniques at their
disposal. Which analytic technique uses a pictorial technique using
symbols to represent a particular type of action or operation?
Pie c
The analytic technique that uses a pictorial technique using symbols to represent a particular type of action or operation is known as Flowcharting.
Flowcharting is a technique used in analyzing, designing, documenting, or managing a process or program in various fields. Flowcharting is a technique that uses graphical representation to describe the steps involved in a process. Flowcharts make use of symbols to depict different types of actions or operations that take place in a process.
This technique can be used in various fields such as computer programming, business processes, engineering, healthcare, etc. Flowcharting helps in identifying potential bottlenecks in a process and enables improvements to be made.
It is useful in understanding complex processes and in communicating ideas to others. Flowcharting can also be used as a tool for decision-making. Hence, BPM analysts use this technique to get a clear understanding of the processes they are analyzing.
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If a corporation's profits are $120, and its three divisions have $30, $80, and $10 of profits respectively, and equal revenues, what percent is the pie slice in Division 3? A. 33.3 B. 12.5 C. 40 D. 8.33 E. 25.0
The pie slice in Division 3 represents 8.33% of the total profits of the corporation. To calculate the percentage of the pie slice in Division 3, we need to determine its proportion out of the total profits of the corporation.
The total profits are given as $120, with Division 1 having $30, Division 2 having $80, and Division 3 having $10 of profits. The sum of the profits of all three divisions is $30 + $80 + $10 = $120, which matches the total profits of the corporation. To find the percentage of Division 3's profits, we divide Division 3's profits ($10) by the total profits ($120) and multiply by 100:. (10 / 120) * 100 = 0.0833 * 100 = 8.33%The pie slice in Division 3 represents 8.33% of the total profits of the corporation. To calculate the percentage, we divide the profit of Division 3 ($10) by the total profits of the corporation ($120) and multiply by 100. The result is (10 / 120) * 100 = 0.0833 * 100 = 8.33%. Therefore, the correct answer is D. 8.33%. Therefore, the pie slice in Division 3 represents 8.33% of the total profits of the corporation. rating
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Which is a type of strategy that hm used to try to remember information during the experiments?
One type of strategy that HM used to try to remember information during the experiments was "rehearsal."
Rehearsal is a memory strategy that involves repeating or reviewing information over and over again to keep it in short-term memory and potentially transfer it to long-term memory.
In the case of HM, due to his severe anterograde amnesia, he would often engage in continuous rehearsal of information to try to retain it for as long as possible. However, despite his efforts, his ability to form new long-term memories was severely impaired.
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Question 83
Which of the following is not a characteristic of a perfectly competitive market? O many firms have market power O firms can freely enter the market O firms are price takers O goods offered for sale are largely the same
The characteristic "Many firms have market power" is not a characteristic of a perfectly competitive market.
In a perfectly competitive market, there are several key characteristics:
Many firms have market power: This statement is incorrect. In a perfectly competitive market, no individual firm has market power. Each firm is a price taker, meaning they have no influence over the market price and must accept the price determined by market forces.Firms can freely enter the market: This is a characteristic of a perfectly competitive market. There are no barriers to entry, allowing new firms to enter and compete with existing ones.Firms are price takers: This is a defining characteristic of a perfectly competitive market. Firms have no control over the price and must accept the prevailing market price for their goods or services.Goods offered for sale are largely the same: This is another characteristic of a perfectly competitive market. The products or services offered by firms are homogeneous, meaning they are identical or very similar, with no differentiation among them.Among the given options, "Many firms have market power" is not a characteristic of a perfectly competitive market. In a perfectly competitive market, firms are price takers, goods are largely the same, and there are no barriers to entry for new firms.
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Whitewater Co. has a total liabilities-to-total equity ratio of 0.75. What are total liabilities as a percentage of total assets? a 38.3% b 40% c 43%
d 57% e None of the above.
To determine the total liabilities as a percentage of total assets, we need to calculate the total liabilities-to-total assets ratio.
Given that Whitewater Co. has a total liabilities-to-total equity ratio of 0.75, we can use the formula:
Total liabilities-to-total assets ratio = Total liabilities / Total assets
Since the total equity is a component of total assets, we can rewrite the formula as:
Total liabilities-to-total assets ratio = Total liabilities / (Total liabilities + Total equity)
Given that the ratio is 0.75, we can set up the equation:\
0.75 = Total liabilities / (Total liabilities + Total equity)
To find the total liabilities as a percentage of total assets, we can solve for the ratio:
0.75 = Total liabilities / (Total liabilities + Total equity)
0.75 (Total liabilities + Total equity) = Total liabilities
0.75 Total liabilities + 0.75 Total equity = Total liabilities
0.75 Total liabilities - Total liabilities = -0.75 Total equity
-0.25 Total liabilities = -0.75 Total equity
Total liabilities = 3 * Total equity
Since the ratio of total liabilities to total equity is 3:1, we can conclude that the total liabilities are 75% of the total assets.
Therefore, the correct answer is e) None of the above.
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Though the prices of the things he buys have gone up about 5% per year over the past three years, Sanjiv's annual income has remained constant in nominal terms (meaning before adjusting for inflation) during that period. However, Sanjiv feels happier now than he did three years ago because the environment where he lives is cleaner, the crime rate has dropped, and he has a new manager now who treats him in a kinder and respectful way than his previous manager. If the majority of the people who live in Sanjiv's city feel the same way about their situations, then we might conclude that over the past three years, the standard of living in that city has: O increased, but the quality of life has decreased. O increased, and so has the quality of life. O declined, and so has the quality of life. O declined, but the quality of life has increased.
The answer to the given scenario is that the standard of living in that city has increased, and so has the quality of life even though the prices of the things Sanjiv buys have gone up about 5% per year over the past three years and his annual income has remained constant in nominal terms.
However, Sanjiv feels happier now than he did three years ago because the environment where he lives is cleaner, the crime rate has dropped, and he has a new manager now who treats him in a kinder and respectful way than his previous manager.As the majority of the people who live in Sanjiv's city feel the same way about their situations, it could be concluded that the standard of living in that city has increased. The term “standard of living” refers to the amount of money a person or a community has to spend on goods and services that contribute to the quality of life. It includes factors such as housing, transportation, education, healthcare, and food. The standard of living is used to measure a community's economic well-being. It reflects how well people in a given location live. The fact that people in Sanjiv's city are experiencing an improved quality of life despite the fact that Sanjiv's annual income has remained constant means that the standard of living in that city has increased, and so has the quality of life.
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Which of the following statements is false? A) A replicating portfolio is a portfolio of other securities that has exactly the same value in one period as the option. B) By using the Law of One Price, we are able to solve for the price of the option as long as we know the probabilities of the states in the binomial tree. C) The binomial tree contains all the information we currently know: the value of the stock, bond, and call options in each state in one period, as well as the price of the stock and bond today. D) The idea that you can replicate the option payoff by dynamically trading in a portfolio of the underlying stock and a risk-free bond was one of the most important contributions of the original Black-Scholes paper. Today, this kind of replication strategy is called a dynamic trading strategy.
The false statement is using the Law of One Price alone cannot determine the price of an option in the binomial tree model. The binomial tree method requires knowledge of probabilities, stock, bond, and option values in each state to calculate the option price iteratively. The correct option is B.
The false statement is B) By using the Law of One Price, we are able to solve for the price of the option as long as we know the probabilities of the states in the binomial tree.
The Law of One Price states that two securities with the same cash flows in the future must have the same price today. While this concept is fundamental in finance, it alone is not sufficient to solve for the price of an option in the binomial tree framework.
In the binomial tree model, the price of the option can be determined through a process called backward induction.
Starting from the terminal nodes, the option value is calculated by working backward through the tree, considering the probabilities of different states and the corresponding payoffs. The Law of One Price is not directly used to calculate the option price in this framework.
Instead, the binomial tree method requires knowledge of the probabilities of the states in the tree, along with the values of the stock, bond, and options in each state, including the price of the stock and bond today.
These inputs are used iteratively to determine the option price at each node of the tree until reaching the present time.
Therefore, statement B is false because the Law of One Price alone is not sufficient to solve for the price of the option in the binomial tree model.
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The Espresso Company’s copy department, which does almost all of
the photocopying for the sales department and the administrative
department, budgets the following costs for the year, based on the
e
The copy department costs allocated to sales department is $195,060, and the copy department costs allocated to administrative department is $206,640.
Allocation of copy department costs to sales and administrative department is as follows.
Fixed costs are assigned on a lump-sum basis, 40 percent to sales and 60 percent to administration
Fixed costs = 40% of ($122,000+$15,250+$12,200+$6,100)=$57,900
Allocation of fixed costs to Sales = 40% of $57,900= $23,160
Allocation of fixed costs to Administration = 60% of $57,900= $34,740
The total variable cost per copy = $0.01 + $0.02 = $0.03
Cost of making 5,730,000 copies
Variable cost = $0.03 * 5,730,000 = $171,900
Sales department copies = 3,050,000
Administrative department copies = 2,680,000
Hence,
Cost allocated to Sales department = Variable cost + Fixed cost allocated to sales department
Cost allocated to Sales department = $171,900 + $23,160 = $195,060
Cost allocated to Administrative department = Variable cost + Fixed cost allocated to administrative department
Cost allocated to Administrative department = $171,900 + $34,740 = $206,640
Therefore, the copy department costs allocated to sales department and to administrative department is is $195,060 and $206,640 respectively.
Note: The question is incomplete. The complete question probably is: The Espresso Company’s copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of 6,100,000 copies:
Salaries (fixed) $122,000
Employee benefits (fixed) 15,250
Depreciation of copy machines (fixed) 12,200
Utilities (fixed) 6,100
Paper (variable, one cent per copy) 61,000
Toner (variable, one cent per copy) 61,000
The costs are assigned to two cost pools, one for fixed and one for variable costs. The costs are then assigned to the sales department and the administrative department. Fixed costs are assigned on a lump-sum basis, 40 percent to sales and 60 percent to administration. The variable costs are assigned at a rate of 2 cents per copy. Assuming 5,730,000 copies were made during the year, 3,050,000 for sales and 2,680,000 for administration, calculate the copy department costs allocated to sales and administration.
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1.1 How many camcorders should click Pix order from Sonic to minimize total cost under the discount schedule? Use the template and enter the result in the Answers sheet. 1.2 Show the calculation of the annual TC (in the Answers sheet) for the optimal order found in question 1.1. You need to show the actual calculation of the Annual ordering cost, holding cost and purchasing cost. 1. Click Pix (CP), a large discount camera shop in New York city has recently begun carrying Sonic model PS58 camcorders, which costs CP $400 each. Sales average 1200 units a year. The cost of placing an order with Sonic is $50. Holding rate is estimated at 60% a year. Sonic is a supplier that offer CP an all unit discount. No discount for an order of 124 or less camcorders. A discount of $25 per unit for an order between 125 and 599 units. For an order of 600 or more a discount of $60 a unit
The optimal order quantity is 600 camcorders should click Pix order from Sonic to minimize total cost under the discount schedule is $265,300.
To minimize the total cost under the discount schedule, Click Pix should order 600 camcorders from Sonic. This is the optimal order quantity that minimizes the total cost, as it lies within the highest discount bracket, where the discount per unit is $60.
Therefore, the cost per unit will be $400 - $60 = $340.
The annual total cost (TC) for the optimal order quantity is given as:
Annual Ordering Cost = (Number of orders per year) × (Cost of placing one order)
Annual ordering cost = (1200 ÷ 600) × 50 = $100
Holding Cost = (Average inventory level) × (Holding cost per unit)
Inventory level = (Order quantity) ÷ 2 = 600 ÷ 2 = 300
Holding cost = 300 × 0.6 × 340 = $61,200
Purchasing Cost = (Order quantity) × (Cost per unit)
= 600 × 340
= $204,000
Therefore, the Annual TC = Annual Ordering Cost + Holding Cost + Purchasing Cost
Annual TC = 100 + 61,200 + 204,000 = $265,300
Therefore 1. The optimal order quantity is 600 camcorders. 2. Annual Total Cost (TC) = $265,300.
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Ovation Company has a single product called a Bit. The company normally produces and sells 69,600 Bits each year at a selling price of $49 per unit. The company's unit costs at this level of activity
The Bit is the only product offered by Ovation Company. Typically, the organization manufactures and vends 69,600 Bits annually, pricing them at $49 for each piece.
The company's unit costs at this level of activity are given below:Direct materials: $9.90
Direct labor: $8.10
Variable manufacturing overhead: $4.20
Fixed manufacturing overhead: $3.00
Variable selling expenses: $7.20
Fixed selling expenses: $3.60
If the company increases its sales by 25%, it will sell an additional 17,280 units. The incremental revenue from these sales will be $856,320 (17,280 units * $49 per unit).
The incremental costs will be $127,440 (17,280 units * $7.20 per unit). Therefore, the incremental profit from increasing sales by 25% will be $728,880 ($856,320 - $127,440).
Note that the fixed manufacturing overhead costs will not increase if the company produces and sells more units. However, the fixed selling expenses will increase by $111,000 if the company increases its sales by 25%.
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The Complete Question
Ovation Company Has A Single Product Called A Bit. The Company Normally Produces And Sells 69,600 Bits Each Year At A Selling Price Of $49 Per Unit. The Company’s Unit Costs At This Level Of Activity Are Given Below:
Ovation Company has a single product called a Bit. The company normally produces and sells 69,600 Bits each year at a selling price of $49 per unit. The company’s unit costs at this level of activity are given below:
Direct materials $ 9.90
Direct labour 8.10
Variable manufacturing overhead 4.20
Fixed manufacturing overhead 3.00 ($208,800 total)
Variable selling expenses 7.20
Fixed selling expenses 3.60 ($250,560 total)
Total cost per unit $ 36.00
Assume that Ovation Company has sufficient capacity to produce 104,400 Bits each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the current 69,600 units each year if it were willing to increase the fixed selling expenses by $111,000.
A firm's labour demand and labour supply equations are shown below. Labour demand equation: Lo=40 - 21W Labour supply equation: Ls=-20 +3(W), where w is the wage per hour worked. Instructions: Round your answers to the nearest whole number. a. The equilibrium wage is $ and the equilibrium quantity of labour employed is people. b. The workers, thinking that their wages are too low, decide to strike. After tense negotiations, the firm decides to raise the wage by 50 percent After the wage increase, people are unemployed.
Answer: Equilibrium wage = $2.50Equilibrium quantity of labor employed = 13 people After wage raise, wage = $3.75Unemployed people = 28The firm's labor demand and labor supply equations are given as follows:
Labor demand equation: Lo=40 - 21W Labor supply equation: Ls=-20 +3(W)Where W is the wage per hour worked. Now, we have to find the following: Equilibrium wage and the equilibrium quantity of labor employed.
The equilibrium wage can be determined by equating the labor demand equation to the labor supply equation. Lo = Ls40 - 21W = -20 + 3W21W + 3W = 40 + 20 (grouping like terms)24W = 60 (adding up both sides)W = 60/24 (dividing both sides by 24)W = 2.5The equilibrium wage is $2.50 Equilibrium quantity of labor employed can be determined by substituting the value of W in any of the given equations. Lo = 40 - 21WLo = 40 - 21(2.5)Lo = 40 - 52.5Lo = -12.5The equilibrium quantity of labor employed is 13 people
b) The workers, thinking that their wages are too low, decide to strike. After tense negotiations, the firm decides to raise the wage by 50 percent. After the wage increase, people are unemployed. The new wage after the raise is 1.5 times the old wage.1.5(2.5) = 3.75The new wage is $3.75At this wage, the labor supply is: Ls = -20 + 3(W)Ls = -20 + 3(3.75)Ls = -20 + 11.25Ls = -8.75We can see that the labor supply is greater than the labor demand. Therefore, some people are unemployed. The number of unemployed people can be determined by substituting the value of W in the labor demand equation. Lo = 40 - 21WLo = 40 - 21(3.75)Lo = -27.5The number of unemployed people is 28.
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