Enchantment Cosmetics, Inc., offers a line of cosmetic and perfume products marketed through leading department stores. Product Manager Erica Kane recently raised the suggested retail price on a popular line of mascara products from $9 to $12 following increases in the costs of labor and materials. Unfortunately, sales dropped sharply from 16,200 to 9,000 units per month. In an effort to regain lost sales, Enchantment ran a coupon promotion featuring $5 off the new regular price. Coupon printing and distribution costs totaled $500 per month and represented a substantial increase over the typical advertising budget of $3,250 per month. Despite these added costs, the promotion was judged to be a success, as it proved to be highly popular with consumers. In the period prior to expiration, coupons were used on 40% of all purchases and monthly sales rose to 15,000 units. a. Calculate the arc price elasticity implied by the initial response to the Enchantment price increase. b. Calculate the effective price reduction resulting from the coupon promotion. c. In light of the price reduction associated with the coupon promotion and assuming no change in the price elasticity of demand, calculate Enchantment's arc advertising elasticity. d. Why might the true arc advertising elasticity differ from that calculated in part C?
> Seaweed Mfg., Inc., is currently operating at only 95 percent of fixed asset capacity. Current sales are $550,000. How fast can sales grow before any new fixed assets are needed?
> Assuming the following ratios are constant, what is the sustainable growth rate? Total asset turnover=2.50 Profit margin=7.8% Equity multiplier=1.80 Payout ratio=60%
> Based on the following information, calculate the sustainable growth rate for Kaleb’s Kickboxing: Profit margin=8.2% Capital intensity ratio=.75 Debt–equity ratio=.40 Net income=$43,000 Dividends=$12,000
> If the Garnett Corp. has a 15 percent ROE and a 25 percent payout ratio, what is its sustainable growth rate?
> If the Baseball Shoppe has an 8 percent ROA and a 20 percent payout ratio, what is its internal growth rate?
> From the previous two questions, prepare a pro forma balance sheet showing EFN, assuming a 15 percent increase in sales, no new external debt or equity financing, and a constant payout ratio. Data from previous two questions HEIR JORDAN CORPORATION I
> A firm’s enterprise value is equal to the market value of its debt and equity, less the firm’s holdings of cash and cash equivalents. This figure is particularly relevant to potential purchasers of the firm. Why?
> What are the four primary disadvantages of the sole proprietorship and partnership forms of business organization? What benefits are there to these types of business organization as opposed to the corporate form?
> The Eastern Shuttle, Inc., is a regional airline providing shuttle service between New York and Washington, D.C. An analysis of the monthly demand for service has revealed the following demand relation: Q = 26,000 - 500P - 250POG + 200IB - 5,000S, where
> The following relations describe monthly demand and supply relations for dry cleaning services in the metropolitan area: QD = 500,000 - 50,000P (Demand) QS = -100,000 + 100,000P (Supply) where Q is quantity measured by the number of items dry cleaned per
> Olympia Natural Resources, Inc., and Yakima Lumber, Ltd., supply cut logs (raw lumber) to lumber and paper mills located in the Cascades Mountain region in the state of Washington. Each company has a different marginal cost of production depending on its
> The demand for housing is often described as being highly cyclical and very sensitive to housing prices and interest rates. Given these characteristics, describe the effect of each of the following in terms of whether it would increase or decrease the qu
> The use of regression analysis for demand estimation can be further illustrated by expanding the Electronic Data Processing (EDP), Inc., example described in the chapter. Assume that the link between units sold and personal selling expenditures described
> To ensure a big fan turnout for a traditional rival, suppose the Arizona State Sun Devils offer one-half off the $16 regular price of reserved seats for a women’s basketball game, and sales jumped from 1,750 to 2,750 tickets. a. Calculate ticket revenues
> Explain how shifting demand and supply curves make market demand estimation difficult.
> “When I go to the grocery store, I find cents-off coupons totally annoying. Why can’t they just cut the price and do away with the clutter?” Discuss this statement and explain why coupon promotions are an effective means of promotion for grocery retailer
> Describe some of the limitations of market experiments.
> Managers often study the profit margin-sales relation over the life cycle of individual products, rather than the more direct profit-sales relation. In addition to the economic reasons for doing so, are there statistical advantages as well?
> In a regression-based estimate of a demand function, the beta coefficient for advertising equals 3.75 with a standard deviation of 1.25 units. What is the range within which there can be 99 percent confidence that the actual parameter for advertising can
> A review of industry wide data for the jelly and jam manufacturing industry suggests the following industry supply function: Q = -59,000,000 + 500,000P - 125,000PL - 500,000PK + 2,000,000W, where Q is cases supplied per year, P is the wholesale price per
> A simple regression TR = a + bQ is not able to explain 19 percent of the variation in total revenue. What is the coefficient of correlation between TR and Q?
> If a regression model estimate of total profit is $50,000 with a standard error of the estimate of $25,000, what is the chance of an actual loss?
> How do linear and log-linear models differ in terms of their assumptions about the nature of demand elasticities?
> “Demand for higher education is highest among the wealthy. This has led to an upward sloping demand curve for college education. The higher the tuition charged, the greater is demand.” Discuss this statement.
> “Rapid innovation in the development, assembly, and delivery of personal computers has led to a sharply downward sloping market demand curve for Dell, Inc.” Discuss this statement.
> Xerox Corporation develops, manufactures, and services document equipment and software solutions worldwide. Assume the company offered $75 off the $1,475 regular price on the Phaser 6360, a durable high-speed colon copier, and Internet sales jumped from
> On weekends during summer months, Eric Cart man rents jet skis at the beach on an hourly basis. Last week, Cart man rented jet skis for 20 hours per day at a rate of $50 per hour. This week, rentals fell to 15 hours per day when Cart man raised the price
> The Creative Publishing Company (CPC) is a coupon book publisher with markets in several southeastern states. CPC coupon books are sold directly to the public, sold through religious and other charitable organizations, or given away as promotional items.
> Identify each of the following statements as true or false and explain why. a. The effect of a $1 change in price is constant, but the elasticity of demand will vary along a linear demand curve b. In practice, price and quantity tend to be individually r
> Kenny McCormick manages a 100-unit apartment building and knows from experience that all units will be occupied if rent is $900 per month. McCormick also knows that, on average, one additional unit will go unoccupied for each $10 increase in the monthly
> Identify each of the following statements as true or false and explain why: a. A parameter is a population characteristic that is estimated by a coefficient derived from a sample of data. b. A one-tail t test is used to indicate whether the independent v
> Business is booming for Consulting Services, Inc. (CSI), a local supplier of computer set-up consulting services. The company can profitably employ technicians as quickly as they can be trained. The average hourly rate billed by CSI for trained technicia
> The Best Buy Company, Inc., is a leading specialty retailer of consumer electronics, personal computers, entertainment software and appliances. The Company operates retail stores and commercial Web sites, the best known of which is bestbuy.com. Recently,
> Demand estimation for brand-name consumer products is made difficult by the fact that managers must rely on proprietary data. There simply is not any publicly available data which can be used to estimate demand elasticities for brand-name orange juice, f
> Alex P. Keaton is an ardent baseball fan. The following table shows the relation between the number of games he attends per month during the season and the total utility he derives from baseball game consumption: a. Construct a table showing Keaton's m
> Prospective car buyers are sometimes confronted by sales representatives who argue that they can offer a vehicle that is “just as good as a BMW, but at one-half the price.” Use the indifference concept to explain why the claims of the sales representativ
> Is an increase in total utility or satisfaction following an increase in income consistent with the law of diminishing marginal utility?
> "The utility derived from consumption is intangible and unobservable. Therefore, the utility concept has no practical value.” Discuss this statement.
> Cornell Pharmaceutical, Inc., and Penn Medical, Ltd., supply generic drugs to treat a wide variety of illnesses. A major product for each company is a generic equivalent of an antibiotic used to treat postoperative infections. Proprietary cost and output
> In the United States, high-wage workers shun public transit and drive cars to work. These same high-income individuals often support massive subsidies for public transit. Use the concept of revealed preference to explain the public demand for transportat
> Individual consumer demand declines for inferior goods as personal income increases because consumers replace them with more desirable alternatives. Is an inverse relation between demand and national income likely for such products?
> An estimated 80% increase in the retail price of cigarettes is necessary to cause a 30% drop in the number of cigarettes sold. Would such a price increase help or hurt tobacco industry profits? What would be the likely effect on industry profits if this
> How is a price-consumption curve related to a demand curve?
> What would an upward-sloping demand curve imply about the marginal utility derived from consumption? Why aren't upward sloping demand curves observed in the real world?
> During the past 40 years the average price of a new single-family home has risen by a factor of ten, making the cost of housing prohibitive for many Americans. Over the same time frame, however, the number of units sold per year has more than doubled. Ar
> Following a price change for Diet Coke, explain how retailers use sales information to learn if Doritos snack chips represent a complement or substitute for Diet Coke.
> Cross-Price Elasticity. B. B. Lean is a catalog retailer of a wide variety of sporting goods and recreational products. Although the market response to the company's spring catalog was generally good, sales of B. B. Lean's $140 deluxe garment bag decline
> Budget Constraints. Holding all else equal, indicate how each of the following changes would affect a budget constraint that limits consumption of goods (Y) and services (X). Explain your answer. a. Deflation that uniformly drops the price of all goods a
> Demand and supply conditions in the market for unskilled labor are important concerns to business and government decision makers. Consider the case of a federally mandated minimum wage set above the equilibrium, or market clearing, wage level. Some of th
> Elasticity. The demand for personal computers can be characterized by the following point elasticities: price elasticity = -5, cross-price elasticity with software = -4, and income elasticity = 2.5. Indicate whether each of the following statements is tr
> In an effort to reduce excess end-of-the-model-year inventory, Harrison Ford offered a 1% discount off the average price of 4WD Escape Gas-Electric Hybrid SUVs sold during the month of August. Customer response was wildly enthusiastic, with unit sales ri
> Determine whether each of the following statements is true or false. Explain why. a. According to the theory of consumer behavior, more is always better. b. Consumers must understand how much one product is preferred over another in order to rank-order c
> Indicate whether each of the following statements is true or false. Explain why. a. The law of diminishing marginal utility states that as an individual increases consumption of a given product within a set period of time, the utility gained from consump
> Indifference Curves. Suggest briefly whether each of the following statements about indifference curves that show preferences between goods and services is true or false and defend your answer a. Consumers prefer higher indifference curves that represen
> The concept of multivariate optimization is important in managerial economics because many demand and supply relations involve more than two variables. In demand analysis, it is typical to consider the quantity sold as a function of the price of the prod
> The following relations describe demand and supply conditions in the lumber/forest products industry QD = 80,000 - 20,000P (Demand) QS = -20,000 + 20,000P (Supply) where Q is quantity measured in thousands of board feet (one square foot of lumber,
> Information Technology, Inc., is a supplier of math coprocessors (computer chips) used to speed the processing of data for analysis on personal computers. Based on an analysis of monthly cost and output data, the company has estimated the following relat
> Eye-de-ho Potatoes is a product of the Coeur d’Alene Growers’ Association. Producers in the area are able to switch back and forth between potato and wheat production depending on market conditions. Similarly, consumers tend to regard potatoes and wheat
> The following relations describe monthly demand and supply conditions in the metropolitan area for recyclable aluminum QD = 317,500 - 10,000P (Demand) QS = 2,500 + 7,500P, (Supply) where Q is quantity measured in pounds of scrap aluminum and P
> Spreadsheet analysis is an appropriate means for studying the demand and supply effects of possible changes in various exogenous and endogenous variables. Endogenous variables include all important demand and supply-related factors that are within the co
> The Sacramento plant of Montero Food Corporation produces a gourmet cheese. The following data pertain to the year ended December 31, 2017: During the year, the company started 200,000 pounds of material into production. Required: Prepare a schedule a
> Tempe Chemicals refines a variety of chemicals for cleaning products. The following data are from the company’s Greenville plant: Work in Process, May 1 2,300,000 gallons Direct material 100% complete Conversion costs 40% complete Units started in proces
> Magi-Clean Vacuum produces a single product, a vacuum cleaner, in a continuous production process. At the beginning of production, 85 percent of materials are added; the other 15 percent are added immediately before transfer to the finished goods warehou
> For the month of September, the Wilber Pickle Company had cost per equivalent unit of $0.80 for materials (pickles, vinegar, spices, etc.) and $.90 for conversion costs (labor and overhead). At Wilber Pickle, units are measured in quarts. The company beg
> The McMillian Tire Company produces tires used on small trailers. The month of June ended with 600 tires in process, 90 percent complete as to direct materials, and 50 percent complete as to conversion costs; 2,000 tires were transferred to finished good
> In each case below, fill in the missing amount. Work in Process, October 1 Units started during October Units completed during October Work in Process, October 31 Case #1 5,000 gallons ? 15,000 gallons 2,500 gallons Work in Process, March 1 Units sta
> Write a paragraph explaining the calculation of the cost per equivalent unit (i.e., explain what goes in the numerator and what goes in the denominator of the calculation). Be sure to explain why the denominator may be different for the cost per equivale
> Techno Enterprises is a manufacturer of microchips (referred to as chips). Its production process is complex and involves more than 100 steps, starting with production of small, round silicon wafers and ending with chips being put into individual package
> Woodinville Cement uses a process costing system. In 2017, the company produced and sold 100,000 bags of cement and incurred the following costs: The current selling price is $4 per unit, and the profit for 2017 was ($4 × 100,000) â&#
> The Amigo Glass Company manufactures glass for sliding glass doors. At the start of August 2,000 units were in process. During August, 15,000 units were complete and 3,000 units were in process at the end of August. These in-process units were 100 percen
> Consider a large manufacturing company like Boeing that rewards its sales force with bonuses based on sales. For this purpose, should the company record sales when orders are placed or, to be consistent with GAAP, wait until orders are delivered?
> The Simon Fishing Company processes salmon for various distributors. The two departments involved are Cleaning and Packing. The next table summarizes the data related to pounds of salmon processed in the Cleaning Department during June: All materials ar
> At the start of November, Penco Refinery had Work in Process inventory consisting of 4,000 units that were 90 percent complete with respect to materials and 50 percent complete with respect to conversion costs. The cost of the units was $43,000 ($30,000
> At the start of July, the Classic Car Wax Company had beginning Work in Process of 2,500 units that were 90 percent complete with respect to material and 45 percent complete with respect to conversion costs. The cost of the units was $7,000 ($5,000 of ma
> The Western Beverage Company is marketing a new product, Tech-Tonic Sports Drink Syrup. The product sells for $16 per gallon, and in recent months the company has had sales of more than 525,000 gallons per month. Consumers mix 1 part syrup with 5 parts w
> Jensen PVC, Inc., produces polyvinyl chloride (PVC) irrigation pipes. In 2017, the cost of producing a foot of pipe was $0.30, and the selling price was $0.39 per foot. In 2018, production costs increased to $0.40 per foot, although the selling price rem
> What is the difference between product and period costs?
> As companies move to computer-controlled manufacturing systems, what happens to the mix of product costs (direct material, direct labor, and manufacturing overhead)?
> What is a job cost sheet? What information does it contain?
> Discuss an important characteristic of a good overhead allocation base.
> Why do companies apply overhead to jobs using a predetermined (budgeted) overhead rate instead of applying actual overhead to jobs?
> Bob Stevens is taking Managerial Accounting at State University next term and asked his friend, Summer Adams, who has already taken the course, to explain its focus. “Are we going to learn more about balance sheets and income statements? Is it just an ex
> Identify the two most common types of product costing systems and discuss the manufacturing environments associated with each system.
> What is the difference between manufacturing and nonmanufacturing costs?
> Would an unexpected increase in sales and production result in underapplied or overapplied overhead? Explain.
> When might it be necessary to assign over- or underapplied overhead to Finished Goods, Work in Process, and Cost of Goods Sold?
> Some modern, capital-intensive production facilities have significantly reduced the proportion of direct labor cost to total production cost. Discuss the effect this might have on the selection of an allocation base for the application of overhead.
> Fill in the missing information: Raw Materials Inventory Beginning Balance 30,000 Purchases 40,000 (a) Ending Balance 15,000 Work in Process Inventory Beginning Balance 80,000 (a) 45,000 63,000 DM (b) DL OH Ending Balance 82,000 Manufacturing Overhea
> The following cost data relate to the office overhead costs of the Charles Wright Tax Preparation Company during the just-completed year: Overhead costs incurred: Office rent…………………………………………$ 25,000 Office supplies……………………………………….6,000 Utilities, offic
> Wolf Manufacturing expects the following overhead costs in the current year: Indirect material…………………………………………….$ 45,000 Indirect labor……………………………………………………..55,000 Depreciation of machinery………………………………..160,000 Repair and maintenance on machinery……………..
> Custom Auto Parts manufactures parts to order for antique cars. Custom Auto Parts makes everything from fenders to engine blocks. Each customer order is treated as a job. The company currently has two jobs, Job 9823 and Job 9824, that are complete, altho
> Retter Shoe Company has expected overhead costs of $12,000,000. The majority of the overhead costs are incurred providing production support to the direct labor force. Direct labor rates vary from $10 to $20 per hour, and more complex tasks are assigned
> At Designs by Deirdre, the budgeted income statement for December 2017 indicated sales of $600,000 and cost of sales of $400,000. Actual sales and cost of sales were $700,000 and $425,000, respectively. Should Deirdre Nelson, owner of the company, be con
> Renton Custom Windows produces custom windows for business and residential customers who supply Renton with architectural specifications. At the start of 2017, three jobs were in process: Cost incurred as of 1/1/2017 Job 258……………………………….$5,000 Job 259……
> Terra Cotta Designs manufactures custom tiles. The following information relates to the fiscal year ending December 31, 2017: Beginning balance in Raw Material Inventory……………………$ 450,000 Purchases of raw material………………………………………………….1,500,000 Ending bala
> Southwest Community Hospital uses a job-order costing system to track charges for each patient. The following charges relate to Candice O’Dea, who had laparoscopic knee surgery: Pharmacy……………………………………………….$ 450 Sterile supply…………………………………………….1,500 Sup
> Rosemont Music is a musical instrument repair facility located in Akron, Ohio. The repair shop uses a job-order costing system and applies overhead costs to repair jobs on the basis of repair technician hours. The following estimates were used in prepari
> Lane Confectioners produces special orders of sugar candies and chocolates for airlines and hotels. During March, Lane purchased, on credit, 2,100 pounds of confectioner’s sugar at $.80 per pound, 2,300 pounds of granulated sugar at $.90 per pound, 900 p
> Vulcan Molding has three production departments: A, B, and C. At the start of the year, the company estimated that it would incur $3,080,000 of direct labor cost and $10,000,000 of manufacturing overhead as follows: Along with many others, Vulcan Moldin
> Vulcan Molding produces molded rubber components. At the start of the year, the company estimated that it would incur $3,500,000 of direct labor cost and $9,000,000 of manufacturing overhead. Overhead is allocated to production on the basis of direct lab
