Chapter 22 Homework Solution

Size: px
Start display at page:

Download "Chapter 22 Homework Solution"

Transcription

1 Chapter 22 Homework Solution B. 1. According to the general principle, since the external market exists the appropriate (optimal) transfer price would be the market price of $50. At any price lower than the external market price, Wood Division would not supply Paper Division. At a price higher than the external market price, Paper Division would not buy from Wood Division. 2a. From Requirement 1, we know that the market price of $50 is the optimal transfer price. However, in this requirement which do we choose--the market price for grade A or the market price for grade B wood? From the analysis below, we can see that if the $60 market price for grade A wood is used, Paper Division would show an operating loss. Using the $50 market price would allow Paper Division to break even. Clearly, a change in the transfer price does not change the total company operating income but does impact division performance. Wood Division would prefer the higher transfer price because its operating income increases from $1,000,000 to $2,000,000, especially if management is evaluated on divisional operating income. Paper Division would prefer the lower transfer price. Alternative 1: Required Internal Transfer at Transfer Price of $ 50 per unit Price Wood Paper Total Units per Unit Division Division Company Sales: Transfer from Wood Div to Paper Div 100,000 $ 50 $ 5,000,000 $ - $ 5,000,000 Sales from Paper Div to final market 100, ,000,000 12,000,000 Total sales $ 5,000,000 $ 12,000,000 $ 17,000,000 Variable costs: Incurred by Wood Division 100, ,000,000-2,000,000 Transfer price from Wood Division 100, ,000,000 5,000,000 Additional processing costs Paper Div 100, ,000,000 3,000,000 Contribution margin 3,000,000 4,000,000 7,000,000 Operating income $ 1,000,000 $ - $ 1,000,000

2 Alternative 2: Required Internal Transfer at Transfer Price of $ 60 per unit Price Wood Paper Total Units per Unit Division Division Company Sales: Transfer from Wood Div to Paper Div 100,000 $ 60 $ 6,000,000 $ - $ 6,000,000 Sales from Paper Div to final market 100, ,000,000 12,000,000 Total sales $ 6,000,000 $ 12,000,000 $ 18,000,000 Variable costs: Incurred by Wood Division 100, ,000,000-2,000,000 Transfer price from Wood Division 100, ,000,000 6,000,000 Additional processing costs Paper Div 100, ,000,000 3,000,000 Contribution margin 4,000,000 3,000,000 7,000,000 Operating income $ 2,000,000 $ (1,000,000) $ 1,000,000 b. The optimal transfer price in this case is the external market price for grade A wood ($60), even though no transfers will take place. This is the value of the wood that Wood Division produces. By using the market price for grade A wood as the transfer price, the company ensures that the managers understand the opportunity costs of using the wood from Wood Division in paper manufacturing. The manager loses the opportunity to sell it in the intermediate market, where the current price is $60. Thus, the Paper Division manager will face the same decision the company would if it were making the decision: use grade A wood at a cost of $60 or grade B wood at a cost of $50. The optimal transfer price is sending the correct "signal" to the subordinate managers. See analysis below:

3 Alternative 3: Allow divisional Managers to Decide Whether to Transfer Price Wood Paper Total Units per Unit Division Division Company Sales: Sales from Wood Div to intermediate mkt 100,000 $ 60 $ 6,000,000 $ - $ 6,000,000 Sales from Paper Div to final market 100, ,000,000 12,000,000 Total sales $ 6,000,000 $ 12,000,000 $ 18,000,000 Variable costs: Incurred by Wood Division 100, ,000,000-2,000,000 Purchase by Paper Div from market 100, ,000,000 5,000,000 Additional processing costs Paper Div 100, ,000,000 3,000,000 Contribution margin 4,000,000 4,000,000 8,000,000 Operating income $ 2,000,000 $ - $ 2,000,000

4 3. Some potential transfer prices can be disregarded immediately as suboptimal. At any transfer price below $20--the variable cost in Wood Division--no transfer will take place because Wood will lose money on each unit sold. Any transfer price above the final (paper) market price less the $30 variable processing cost of Paper Division will also not be optimal because Paper will not buy any wood. We have to determine the optimal transfer price between these two extremes. $50 Transfer Price A B C D Units transferred 100, , , ,000 Final market price $ 120 $ 70 $ 50 $ 40 Transfer price Texas Paper's decision: Revenue $ 12,000,000 $ 7,000,000 $ 5,000,000 $ 4,000,000 Variable Cost - Paper Division (100,000 x $30) 3,000,000 3,000,000 3,000,000 3,000,000 Contribution margin $ 7,000,000 $ 2,000,000 $ - $ (1,000,000) Wood Division's decision: Revenue ($50 transfer price from Paper Div) $ 5,000,000 $ 5,000,000 $ 5,000,000 $ 5,000,000 Contribution margin $ 3,000,000 $ 3,000,000 $ 3,000,000 $ 3,000,000 Paper Division's decision: Revenue (from sale to final market $ 12,000,000 $ 7,000,000 $ 5,000,000 $ 4,000,000 Variable Cost - transferred from Wood Division 5,000,000 5,000,000 5,000,000 5,000,000 Variable Cost - Paper Division further processing 3,000,000 3,000,000 3,000,000 3,000,000 Contribution margin $ 4,000,000 $ (1,000,000) $ (3,000,000) $ (4,000,000) Make transfer? Yes No No No

5 $20 Transfer Price (Variable cost in Wood Division) A B C D Units transferred 100, , , ,000 Final market price $ 120 $ 70 $ 50 $ 40 Transfer price Texas Paper's decision: Revenue $ 12,000,000 $ 7,000,000 $ 5,000,000 $ 4,000,000 Variable Cost - Paper Division (100,000 x $30) 3,000,000 3,000,000 3,000,000 3,000,000 Contribution margin $ 7,000,000 $ 2,000,000 $ - $ (1,000,000) Wood Division's decision: Revenue ($20 transfer price from Paper Div) $ 2,000,000 $ 2,000,000 $ 2,000,000 $ 2,000,000 Contribution margin $ - $ - $ - $ - Make transfer? Yes Yes Yes Yes Paper Division's decision: Revenue (from sale to final market) $ 12,000,000 $ 7,000,000 $ 5,000,000 $ 4,000,000 Variable Cost - transferred from Wood Division 2,000,000 2,000,000 2,000,000 2,000,000 Variable Cost - Paper Division further processing 3,000,000 3,000,000 3,000,000 3,000,000 Contribution margin $ 7,000,000 $ 2,000,000 $ - $ (1,000,000) In looking at the analysis, if the selling price of paper drops below $50 the Paper Division would have a negative CM. The Wood Division and the company as a whole would be okay as long as the final market price did not drop below %50. However, because of the profit issue with Paper Division, $50 would be optimal only as long as the final market price is $120 or higher. If we look at using the Wood Division variable cost of $20, we see that both divisions and the company as a whole would at least breakeven in regards to the CM if the final market price drops to $50. Keep in mind that the fixed costs are unavaidable and thereby irrelevant in this decision. There would also be no opportunity cost because if there is no intermediate market for the wood, there is no alternative use. Following this reasoning, it is easy to see that the only price that will work is the $20 variable cost for Wood Division.

6 4. Overall and divisional income for Texas Papers Wood Paper Total Division Division Company Units 100, ,000 Revenue $ 5,000,000 $ 12,000,000 $ 12,000,000 Variable costs Transfer - 2,000,000 c - Directly incurred 2,000,000 c 3,000,000 d 5,000,000 Contribution margin 3,000,000 7,000,000 7,000,000 Operating $ 1,000,000 $ 3,000,000 $ 1,000,000 a b b a 100,000 x $50 b 100,000 x $120 c 100,000 x $20 d 100,000 x $30 5. Answers will vary.

Perfect Competition and The Supply Curve

Perfect Competition and The Supply Curve chapter: 13 >> Perfect Competition and The Supply Curve The following materials are taken from Chap. 13, Economics, 2 nd ed., Krugman and Wells(2009), Worth Palgrave MaCmillan. 2009 Worth Publishers 1

More information

NEW YORK UNIVERSITY STERN SCHOOL OF BUSINESS C PRINCIPLES OF MANAGERIAL ACCOUNTING

NEW YORK UNIVERSITY STERN SCHOOL OF BUSINESS C PRINCIPLES OF MANAGERIAL ACCOUNTING NEW YORK UNIVERSITY STERN SCHOOL OF BUSINESS C10.0002 PRINCIPLES OF MANAGERIAL ACCOUNTING Professor K. R. Balachandran 300 Tisch Hall; Tel: 212-998-0029 E-mail: kbalacha@stern.nyu.edu Fall 2006 Office

More information

Chapter 04 Fundamentals of Cost Analysis for Decision Making

Chapter 04 Fundamentals of Cost Analysis for Decision Making Chapter 04 Fundamentals of Cost Analysis for Decision Making 90. Carson Corporation produces and sells three products. The three products, Alpha, Beta, and Gamma, are sold in a local market and in a regional

More information

Three Methods for Setting Advertising Budget. Cost Based Advertising. Cost Based Advertising. Affordable method

Three Methods for Setting Advertising Budget. Cost Based Advertising. Cost Based Advertising. Affordable method Three Methods for Setting Budget Cost Based Ted Mitchell Cost Based Competitive Based Customer Based Cost Based Affordable Method to Sales Ratio Cost per thousand GRPs Average Return on Promotional Investment

More information

Linear Cost, Revenue, Profit, Supply, and Demand

Linear Cost, Revenue, Profit, Supply, and Demand Linear Cost, Revenue, Profit, Supply, and Demand Complete the following questions to investigate different types of linear models. Record your responses on this worksheet and the answer sheet. Turn in

More information

F2 - Management Accounting ACCA Tutorial Questions Chapter 22: Further Variance Analysis

F2 - Management Accounting ACCA Tutorial Questions Chapter 22: Further Variance Analysis F2 - Management Accounting ACCA Tutorial Questions Chapter 22: Further Variance Analysis 1 Question 1 Suppose that the standard selling price of product X is $15. Actual sales in 2011 were 2,000 units

More information

Chapter 6 Relevant Information for Special Decisions Pearson Education. All rights reserved

Chapter 6 Relevant Information for Special Decisions Pearson Education. All rights reserved Chapter 6 Relevant Information for Special Decisions 1 Learning Objectives 1. Describe and identify information relevant to shortterm business decisions 2. Decide whether to accept a special order 3. Describe

More information

Decision making and Relevant Information

Decision making and Relevant Information Decision making and Relevant Information 1 Introduction This chapter explores the decision-making process. It focuses on specific decisions such as accepting or rejecting a one-time-only special order,

More information

Producing Goods & Services

Producing Goods & Services Producing Goods & Services Supply is the quantities of a product or service that a firm is willing and able to make available for sale at all possible prices. The Law of Supply states that the quantity

More information

Example 2: Franklin Company

Example 2: Franklin Company ACCTG 533, Section 1: Lecture: Profitability Analysis 2 Profitability Analysis 2 Profitability Analysis 2: Continuing on with our examples. Buy Make Unit selling price (stove) $340 $340 Volume (per month)

More information

Producing Goods & Services

Producing Goods & Services Producing Goods & Services Supply is the quantities of a product or service that a firm is willing and able to make available for sale at all possible prices. The Law of Supply states that the quantity

More information

Vertical Mergers. The retailer has marginal cost of Pu+lOO where PU is the price per unit charged by the upstream manufacturer Grapefruit.

Vertical Mergers. The retailer has marginal cost of Pu+lOO where PU is the price per unit charged by the upstream manufacturer Grapefruit. Vertical Mergers Suppose that Grapefruit Computers makes a unique product that is distributed exclusively by the retailer Better Buy. Both firms act as monopolists to maximize their profits. Consumers

More information

Future revenues A$ A$6 500 Deduct future costs Operating income A$8 500 A$6 500

Future revenues A$ A$6 500 Deduct future costs Operating income A$8 500 A$6 500 Chapter 8 DECISION MAKING AND RELEVANT INFORMATION 8-16 (20 min.) Disposal of assets 1. This is an unfortunate situation, yet the A$78 000 costs are irrelevant regarding the decision to re-machine or sold

More information

Multiple Choice Questions

Multiple Choice Questions Multiple Choice Questions 1. A cost not relevant to deciding whether to purchase a new machine is: a) The cost of the new machine b) Lower maintenance costs for the new machine c) The cost of the old machine

More information

Differential Analysis: Relevant Costs the Key to Decision Making

Differential Analysis: Relevant Costs the Key to Decision Making April 30, 2014 Differential Analysis: Relevant Costs the Key to Decision Making Today s Agenda Relevant Costs vs. Irrelevant Costs Differential Approach vs. Total Cost Approach Product Transfer Decision

More information

Chapter One (cont ) Economics is defined as: The science that studies the choices people make in a world of scarcity

Chapter One (cont ) Economics is defined as: The science that studies the choices people make in a world of scarcity Economics Review Chapter One Wants exceed resources to fill wants Therefore scarcity exists Therefore we must make choices Every time we make a choice, we leave behind an opportunity cost, the most likely

More information

Test 3 Econ 3144 Fall 2010 Dr. Rupp 31 Multiple Choice Questions Signature I have neither given nor received aid on this exam

Test 3 Econ 3144 Fall 2010 Dr. Rupp 31 Multiple Choice Questions Signature I have neither given nor received aid on this exam Test 3 Econ 3144 Name Fall 2010 Dr. Rupp 31 Multiple Choice Questions Signature I have neither given nor received aid on this exam Use the following information to answer questions 1-4. A DVD making monopolist

More information

Session 1, Tuesday, April 4th (8:30-9:45)

Session 1, Tuesday, April 4th (8:30-9:45) Session 1, Tuesday, April 4th (8:30-9:45) Cost Accounting Topics: Cost-Volume Profit Analysis v2.0 2014 Association for Financial Professionals. All rights reserved. Session 12-1 Chapter Covered Managerial

More information

Goals and Agenda Linear Programming Shadow Prices. Linear Programming. Management 560: Management Science. Tuesday, March 17, 2009

Goals and Agenda Linear Programming Shadow Prices. Linear Programming. Management 560: Management Science. Tuesday, March 17, 2009 Tuesday, March 17, 2009 Goals Goals of this class meeting 2/ 8 Learn how to set up problems with Learn how to maximize or minimize objectives subject to Learn how to solve linear programming problems in

More information

After studying this chapter you will be able to

After studying this chapter you will be able to 3 Demand and Supply After studying this chapter you will be able to Describe a competitive market and think about a price as an opportunity cost Explain the influences on demand Explain the influences

More information

The importance of a transfer pricing system. Understanding that optimum TP we will lead to goal congruency

The importance of a transfer pricing system. Understanding that optimum TP we will lead to goal congruency Transfer Pricing This Master Class will cover; A consideration of the theory The importance of a transfer pricing system Understanding the optimum transfer price Understanding that optimum TP we will lead

More information

Four Market Models. 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly

Four Market Models. 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly Four Market Models 1. Perfect Competition 2. Pure Monopoly 3. Monopolistic Competition 4. Oligopoly Perfect Competition Chapter 14 Perfect Competition Characteristics 1. Very Large Numbers Many buyers/sellers

More information

CHAPTER 5:2: Costs of Production:

CHAPTER 5:2: Costs of Production: CHAPTER 5:2: Costs of Production: Objectives We will analyze how firms decide how much labor to hire in order to produce a certain level of output. We will analyze the production costs of a firm and explain

More information

Relevant Costs for Decision Making

Relevant Costs for Decision Making Relevant Costs for Decision Making Chapter Thirteen 13-2 Learning Objective 1 Identify relevant and irrelevant costs and benefits in a decision. 13-3 Cost Concepts for Decision Making A relevant cost is

More information

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

More information

Pricing, Distribution and Product Promotion

Pricing, Distribution and Product Promotion Slide 1 BA-101 Introduction to Business Pricing, Distribution and Product Promotion Chapter Twelve 1-1 Slide 2 Pricing to Meet Business Objectives Pricing determining what a customer pays in exchange for

More information

User Manual - Custom Finish Cattle Profit Projection

User Manual - Custom Finish Cattle Profit Projection User Manual - Custom Finish Cattle Profit Projection The purpose of this decision aid is to help facilitate the organization of custom finish cattle, feeder cattle price, costs and production data to project

More information

Chapter 4: Demand Section 3

Chapter 4: Demand Section 3 Chapter 4: Demand Section 3 Objectives 1. Explain how to calculate elasticity of demand. 2. Identify factors that effect elasticity. 3. Explain how firms use elasticity and revenue to make decisions. Copyright

More information

AFP Financial Planning & Analysis Learning System Session 1, Tuesday, April 4th (8:30-9:45) Cost Accounting Topics: Cost-Volume Profit Analysis

AFP Financial Planning & Analysis Learning System Session 1, Tuesday, April 4th (8:30-9:45) Cost Accounting Topics: Cost-Volume Profit Analysis AFP Financial Planning & Analysis Learning System Session 1, Tuesday, April 4th (8:30-9:45) Cost Accounting Topics: Cost-Volume Profit Analysis Chapters Covered Managerial and Cost Accounting: Part I,

More information

Chapter 2 An Introduction to Cost Terms and Purposes

Chapter 2 An Introduction to Cost Terms and Purposes Chapter 2 An Introduction to Cost Terms and Purposes Copyright 2003 Pearson Education Canada Inc. Slide 2-15 Costs and Cost Objects Cost a resource sacrificed or foregone to achieve a specific objective

More information

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Economics 6 th edition 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Modified by Yulin Hou For Principles of Microeconomics Florida International University Fall

More information

Goals and Agenda Linear Programming Shadow Prices. Linear Programming. BUS 735: Business Decision Making and Research. Wednesday, November 8, 2017

Goals and Agenda Linear Programming Shadow Prices. Linear Programming. BUS 735: Business Decision Making and Research. Wednesday, November 8, 2017 Wednesday, November 8, 2017 Goals Reading Goals of this class meeting 1/ 9 Specific Goals: Learn how to set up problems with Learn how to maximize or minimize objectives subject to Learn how to solve linear

More information

IM3 - Lesson 5: Systems with Quadratics Unit 3 Quadratic Functions PART 2

IM3 - Lesson 5: Systems with Quadratics Unit 3 Quadratic Functions PART 2 A. Lesson Context BIG PICTURE of this UNIT: How & why do we build NEW knowledge in Mathematics? What NEW IDEAS & NEW CONCEPTS can we now explore with specific references to QUADRATIC FUNCTIONS? How can

More information

A Guide to Costing and Pricing a Product or Service

A Guide to Costing and Pricing a Product or Service A Guide to Costing and Pricing a Product or Service Business Information Factsheet BIF054 December 2016 Introduction Setting the right price for a new product or service can be one of the hardest tasks

More information

SHORT-RUN DECISION MAKING: RELEVANT COSTING

SHORT-RUN DECISION MAKING: RELEVANT COSTING 13-1 13 SHORT-RUN DECISION MAKING: RELEVANT COSTING DISCUSSION QUESTIONS 1. Tactical decisions are short run in nature; they involve choosing among alternatives with an immediate or limited end in view.

More information

3. Which is not an inventory account manufacturing companies have: a) Raw Materials b) Manufacturing Overhead c) Work in Process d) Finished Goods

3. Which is not an inventory account manufacturing companies have: a) Raw Materials b) Manufacturing Overhead c) Work in Process d) Finished Goods Chapter 1 Question Review 1. Which of the following is not a characteristic of managerial accounting: a) Emphasizes decisions affecting the future b) Mandatory for external reports c) Need not follow GAAP

More information

CHAPTER 7 SOLUTIONS TO PROBLEMS: SET B PROBLEM 7-1B

CHAPTER 7 SOLUTIONS TO PROBLEMS: SET B PROBLEM 7-1B CHAPTER 7 SOLUTIONS TO PROBLEMS: SET B PROBLEM 7-1B (a) Reject Order Accept Order Revenues (1, X $3) Selling and administrative expenses Net income $ $ $3, 24, 25, $ 35, (1) (2) $ 3, ( (24,) ( (25,) $

More information

MANAGERIAL ACCOUNTING

MANAGERIAL ACCOUNTING MANAGERIAL ACCOUNTING PROGRAM COURSE DESCRIPTION AND GOALS The goal of this managerial accounting course is to measure the cost of designing, developing, producing (or purchasing), selling, distributing,

More information

You will find more complete answers to some of these questions in the lecture notes.

You will find more complete answers to some of these questions in the lecture notes. You will find more complete answers to some of these questions in the lecture notes. 4 pt. 1. Draw and label a market with a perfectly elastic supply and a perfectly inelastic demand. P +------------------------------

More information

WHAT IS A COMPETITIVE MARKET?

WHAT IS A COMPETITIVE MARKET? Chapter 14. Firms in Competitive Markets WHAT IS A COMPETITIVE MARKET? A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. small relative

More information

Economics 101 Section 5

Economics 101 Section 5 Economics 101 Section 5 Lecture #17 March 23, 2004 Chapter 7 -The Firms long-run decisions -The Principal-Agent problem Chapter 8 -Perfect Competition - Competition in the Short-Run Lecture Outline Recap

More information

Cost Allocation: Joint Products and Byproducts Chapter 16

Cost Allocation: Joint Products and Byproducts Chapter 16 Cost Allocation: Joint Products and Byproducts Chapter 16 16-1 Learning Objective 1 Identify the splitoff point(s) in a joint-cost situation. 16-2 Joint-Cost Basics Joint costs Joint products Byproduct

More information

ACCT3310 Fall 20xx Exam #1 Dr. Bailey

ACCT3310 Fall 20xx Exam #1 Dr. Bailey Sample exam for Spring 2014 students. The purposes of this practice exam are (1) to familiarize you with my testing style, and (2) to allow you to pre-test yourself after you have studied and feel ready.

More information

Thinking Like an Economist

Thinking Like an Economist The Economist as a Scientist Thinking Like an Economist Chapter 2 The economic way of thinking... Involves thinking analytically and objectively. Makes use of the scientific method. Copyright 2001 by Harcourt,

More information

Chapter Ten. Pricing: Understanding and Capturing Customer Value. Chapter 10- slide 1

Chapter Ten. Pricing: Understanding and Capturing Customer Value. Chapter 10- slide 1 Chapter Ten Pricing: Understanding and Capturing Customer Value Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter 10- slide 1 Pricing: Understanding and Capturing Customer Value

More information

Supply. Understanding Economics, Chapter 5

Supply. Understanding Economics, Chapter 5 Supply Understanding Economics, Chapter 5 What is Supply? Chapter 5, Lesson 1 What is Supply?! Supply the amount of a product a producer or seller would be willing to offer for sale at all possible prices

More information

1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I

1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I SOLUTIONS TO EERCISES EERCISE 2-1 (15 minutes) 1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I EERCISE 2-2 (15 minutes) 1. Product

More information

Outlining the Chapter

Outlining the Chapter Outlining the Look over the chapter for an overview of the material. Pay attention to the main topics in the book. As you look over each section of the book, fill in the missing words in the outline below.

More information

BREAK EVEN ANALYSIS EXERCISES

BREAK EVEN ANALYSIS EXERCISES BREAK EVEN ANALYSIS EXERCISES Q.1. (a) is defined as the excess of price over available cost. It contributes towards the covering of the fixed costs and then towards the profit targets. It can be calculated

More information

Marketing in Today s World

Marketing in Today s World Chapter 13 in Today s World Section 13.1 Essentials Read to Learn Define. Identify the functions of. List the elements of the mix. The Main Idea To sell their products or services, businesses engage in

More information

Chapter 13 Notes Page 1. The key part of this analysis is to consider only the information that is relevant to the decision being made.

Chapter 13 Notes Page 1. The key part of this analysis is to consider only the information that is relevant to the decision being made. Chapter 13 Notes Page 1 In making decisions, the following steps are taken: Define the problem; Identify the feasible alternatives; Identify the costs of each feasible alternative; Compare the relevant

More information

Accounting. Financial Accounting. Management Accounting SESSION 03 PRICING DECISIONS 10/22/2016

Accounting. Financial Accounting. Management Accounting SESSION 03 PRICING DECISIONS 10/22/2016 03-1 SESSION 03 PRICING DECISIONS GDM MANAGING FINANCE Nadun Kumara 2 Accounting Management Accounting Financial Accounting 1 03 - Session 03 Synopsis 3 1. Introduction to Pricing - T 2. Objectives of

More information

Transfer Pricing. 2. Advantages and Disadvantages of Decentralization

Transfer Pricing. 2. Advantages and Disadvantages of Decentralization Smeal College of Business Managerial Accounting: ACCTG 404 Pennsylvania State University Professor Huddart 1. Overview An essential feature of decentralized firms is responsibility centers (e.g., cost-,

More information

Chapter 11. Economic Change in a Competitive Industry in the Entrepreneurless Economy

Chapter 11. Economic Change in a Competitive Industry in the Entrepreneurless Economy February 15, 2003 Chapter 11 Economic Change in a Competitive Industry in the Entrepreneurless Economy The goal of this chapter is to show how to use the theory of demand and supply for the entrepreneurless

More information

Evaluating Preconditioning Profitability - Projection and Closeout Manual

Evaluating Preconditioning Profitability - Projection and Closeout Manual Evaluating Preconditioning Profitability - Projection and Closeout Manual This user manual describes the methodology for a cow-calf producer to evaluate the profitability of preconditioning calves to forward

More information

Accounting. Management Accounting. Financial Accounting SESSION 03 PRICING DECISIONS. Session 03 - Pricing Decisions 12/18/2016

Accounting. Management Accounting. Financial Accounting SESSION 03 PRICING DECISIONS. Session 03 - Pricing Decisions 12/18/2016 Session 03-12/18/2016 SESSION 03 PRICING DECISIONS GDM MANAGING FINANCE Nadun Kumara Accounting Management Accounting Financial Accounting Batch 32) 1 Session 03-12/18/2016 Session 03 Synopsis 1. Introduction

More information

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Three functions of importance in business are cost functions, revenue functions and profit functions. Cost functions

More information

Financial Accounting Chapter 5 Notes The Operating Cycle And Merchandising Operations

Financial Accounting Chapter 5 Notes The Operating Cycle And Merchandising Operations Financial Accounting Chapter 5 Notes The Operating Cycle And Merchandising Operations I. Management Issues in Merchandising Business Merchandising business earns income by buying and selling goods. Such

More information

10-1. Learning Objective. Identify relevant and irrelevant costs and benefits in a decision.

10-1. Learning Objective. Identify relevant and irrelevant costs and benefits in a decision. 10-1 Learning Objective Identify relevant and irrelevant costs and benefits in a decision. 10-2 Relevant Costs and Benefits A relevant cost is a cost that differs between alternatives. A relevant benefit

More information

Building Your Loyalty Program ROI

Building Your Loyalty Program ROI Building Your Loyalty Program ROI A loyalty program has one purpose: increasing profits. Find out how to structure your program so that it will generate a beneficial financial return. Loyalty programs

More information

If the industry s short-run supply curve equals the horizontal sum of individual firms short-run supply curves, which of the following may we infer?

If the industry s short-run supply curve equals the horizontal sum of individual firms short-run supply curves, which of the following may we infer? Microeconomics, Module 8: Competition: Long Run (Chapter 7) Illustrative Test Questions (The attached PDF file has better formatting.) Question 8.1: Long Run Equilibrium When is a competitive profit-maximizing

More information

P2 Performance Management

P2 Performance Management Performance Pillar P2 Performance Management Examiner s Answers SECTION A Answer to Question One (a) (i) One of the reasons why the chart does not provide a useful summary of the budget data is inherent

More information

YOUR MOST IMPORTANT DECISION!

YOUR MOST IMPORTANT DECISION! YOUR MOST IMPORTANT DECISION! Let me ask you a question. Do you think increasing your sales would be a good thing? If I told you that your price was too low, would you still think increasing sales would

More information

DECISION MAKING. Key Terms and Concepts to Know

DECISION MAKING. Key Terms and Concepts to Know DECISION MAKING Key Terms and Concepts to Know Relevance: Relevant costs and benefits are those that differ among alternatives Total approach vs. differential approach and why relevant costs must be isolated.

More information

2010 Pearson Education Canada

2010 Pearson Education Canada What Is Perfect Competition? Perfect competition is an industry in which Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have

More information

RETAILING. April 23, 2018

RETAILING. April 23, 2018 RETAILING April 23, 2018 TODAY S AGENDA Continue on with Unit 6: Pricing New Lesson: Pricing Policies Unit 6 Quiz - Friday PRICING POLICIES Retail pricing is influenced by both controllable and uncontrollable

More information

BUILDING ENTERPRISE BUDGETS FOR INDIANA SPECIALTY CROP GROWERS

BUILDING ENTERPRISE BUDGETS FOR INDIANA SPECIALTY CROP GROWERS BUILDING ENTERPRISE BUDGETS FOR INDIANA SPECIALTY CROP GROWERS Andres Gallegos and Ariana Torres Financial tools can help farmers improve farm s performance and assure profitability. Enterprise budgets,

More information

Markup vs Margin: How to Define and Calculate

Markup vs Margin: How to Define and Calculate Markup vs Margin: How to Define and Calculate Basically, both markup and margin reflect relationships between cost and price, but this reflection is not the same for markup and margin. Taking a closer

More information

Unit: Management, Control and Accountability for Financial Resources Assignment title: June Marking Scheme

Unit: Management, Control and Accountability for Financial Resources Assignment title: June Marking Scheme Unit: Management, Control and Accountability for Financial Resources Assignment title: June 2015 Marking Scheme Markers are advised that, unless a task specifies that an answer be provided in a particular

More information

Chapter 6: Sellers and Incentives

Chapter 6: Sellers and Incentives Chapter 6: Sellers and Incentives Modified by Chapter Outline 6. 6. 6. 6. 6. 6. 1. Sellers in a Perfectly Competitive Market 2. The Seller's Problem 3. From Seller's Problem to Supply Curve 4. Producer

More information

AP Microeconomics Chapter 8 Outline

AP Microeconomics Chapter 8 Outline I. Learning Objectives In this chapter students should learn: A. Why economic costs include both explicit (revealed and expressed) costs and implicit (present but not obvious) costs. B. How the law of

More information

Competitive Markets. Jeffrey Ely. January 13, This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License.

Competitive Markets. Jeffrey Ely. January 13, This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License. January 13, 2010 This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License. Profit Maximizing Auctions Last time we saw that a profit maximizing seller will choose

More information

Incremental Analysis. LO 1: Analysis

Incremental Analysis. LO 1: Analysis Incremental Analysis LO 1: Analysis Terms Incremental analysis Relevant cost Opportunity cost Sunk cost Analysis: Incremental analysis uses financial data that changes among alternatives to help decision

More information

Paper F5. Performance Management. March/June 2018 Sample Questions. Fundamentals Level Skills Module

Paper F5. Performance Management. March/June 2018 Sample Questions. Fundamentals Level Skills Module Fundamentals Level Skills Module Performance Management March/June 2018 Sample Questions Time allowed: 3 hours 15 minutes This question paper is divided into three sections: Section A ALL 15 questions

More information

Chapter 5: Price Controls: Multiple Choice Questions Chapter 6: Elasticity Multiple Choice Questions

Chapter 5: Price Controls: Multiple Choice Questions Chapter 6: Elasticity Multiple Choice Questions Chapter 5: Price Controls: Multiple Choice Questions 1. ANSWER: d. ceiling. 2. ANSWER: a. a shortage, which cannot be eliminated through market adjustment. 3. ANSWER: b. the equilibrium price is below

More information

DEFINITIONS AND CONCEPTS

DEFINITIONS AND CONCEPTS DEFINITIONS AND CONCEPTS ** CONCEPTS AND DEFINITIONS IN THIS MODULE APPEAR IN VARIOUS CHAPTERS ** Key Terms and Concepts to Know Major Management Activities Planning - formulating long and short-term plans

More information

Managerial Accounting Prof. Dr. Varadraj Bapat School of Management Indian Institute of Technology, Bombay

Managerial Accounting Prof. Dr. Varadraj Bapat School of Management Indian Institute of Technology, Bombay Managerial Accounting Prof. Dr. Varadraj Bapat School of Management Indian Institute of Technology, Bombay Module - 9 Lecture - 20 Accounting for Costs Dear students, in our last session we have started

More information

Chapter 1: MANAGERS, PROFITS, AND MARKETS

Chapter 1: MANAGERS, PROFITS, AND MARKETS Chapter 1: MANAGERS, PROFITS, AND MARKETS Essential Concepts 1. Managerial economics applies microeconomic theory the study of the behavior of individual economic agents to business problems in order to

More information

Economics 109 Lect. 4 Notes Supply and Demand 2 Opening a Restaurant?

Economics 109 Lect. 4 Notes Supply and Demand 2 Opening a Restaurant? Economics 109 Lect. 4 Notes Supply and Demand 1 Entry and Exit Economics 109 Lect. 4 Notes Supply and Demand 2 Opening a Restaurant? Economics 109 Lect. 4 Notes Supply and Demand 3 The Restaurant Experiment

More information

INTRODUCTION ECONOMIC PROFITS

INTRODUCTION ECONOMIC PROFITS INTRODUCTION This chapter addresses the following key questions: What are profits? What are the unique characteristics of competitive firms? How much output will a competitive firm produce? Chapter 7 THE

More information

Homework #2 Answer Key

Homework #2 Answer Key Econ 226, ection 4 - Principles of Microeconomics Fall, 21 r. Kathryn Wilson Homework #2 Answer Key 1. Use the following graphs in answering this question. 7 emand and upply of Apartments 7 emand and upply

More information

THE APPRENTICE As we ve seen in The Apprentice, it all comes down to cost.. How much have we spent and how much did we make in return? THE EQUATION IS SIMPLE PROFIT What we make What we spend OR LOSS If

More information

Welcome to: FNSACC507A Provide Management Accounting Information

Welcome to: FNSACC507A Provide Management Accounting Information Welcome to: FNSACC507A Provide Management Accounting Information Week 1 Chapter 1 COST CONCEPTS FNSACC507A Provide Management Accounting Information By the end of this lesson, you will be able to 1. Explain

More information

Chapter 24 Differential Analysis and Product Pricing Study Guide Do You Know?

Chapter 24 Differential Analysis and Product Pricing Study Guide Do You Know? Chapter 24 Differential Analysis and Product Pricing Study Guide Do You Know? Learning Objective 1: Prepare differential analysis reports for a variety of managerial decisions. How to prepare a differential

More information

Getting produce to the consumer involves numerous costs. 1 What are marketing costs and why do they vary?

Getting produce to the consumer involves numerous costs. 1 What are marketing costs and why do they vary? Getting produce to the consumer involves numerous costs 1 What are marketing costs and why do they vary? 8 Produce preparation and packaging costs We assume that harvesting of produce and the movement

More information

What is Hourly Pricing?

What is Hourly Pricing? What is Hourly Pricing? Hourly Pricing (HP) is a variable rate that changes every hour based on several factors, including: 1. Weather 2. Time of day 3. Season 4. Wholesale power market conditions 5. Other

More information

Institute of Certified Management Accountants of Sri Lanka Operational Level November 2016 Examination

Institute of Certified Management Accountants of Sri Lanka Operational Level November 2016 Examination Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level November 2016 Examination Examination Date : 26 th November 2016 Number of Pages : 07 Examination

More information

Cost Based Analysis of Marketing Ratios

Cost Based Analysis of Marketing Ratios Cost Based Analysis of Marketing Ratios Ted Mitchell Cost Based 2 operating statements Competitive Based 3 External 4 information Customer Based 5 External and Customer 6 information Cost Based Simple

More information

Chapter 10 & 11. Pricing. Course: Mkt 202 Lecturer: Emran Mohammad

Chapter 10 & 11. Pricing. Course: Mkt 202 Lecturer: Emran Mohammad Chapter 10 & 11 Pricing Course: Mkt 202 Lecturer: Emran Mohammad Pricing Ch 10-2 The amount of money charged for a product or service; the sum of the values that customers exchange for the benefits of

More information

PROSPERITY CUP

PROSPERITY CUP PROSPERITY CUP 2017-18 BUSINESS IDEA FORM SECTION 1: BACKGROUND INFORMATION 1. Please choose one option: a) This is a new business idea b) I am currently running this business Businesses operating for

More information

Tutorial Resource Allocation

Tutorial Resource Allocation MARKETING ENGINEERING FOR EXCEL TUTORIAL VERSION 160728 Tutorial Resource Allocation Marketing Engineering for Excel is a Microsoft Excel add-in. The software runs from within Microsoft Excel and only

More information

Lecture 2: Flow of resource costs

Lecture 2: Flow of resource costs Lecture 2: Flow of resource costs Cost Object: anything for which a separate measurement of costs is required, e.g. products, services, customers, projects, processes, segments of the value chain, divisions/departments,

More information

Summary. H.J. Leavitt model of organization. Model of organization: organizational structure. Model of organization: people

Summary. H.J. Leavitt model of organization. Model of organization: organizational structure. Model of organization: people H.J. Leavitt model of organization Summary Mission goals and objectives Goals hierarchy Tasks Goals, objectives & Tasks People Individual values, beliefs, attitudes, motives, competencies Group behaviour

More information

The 3 Factors of an Awesome Product

The 3 Factors of an Awesome Product Thank you for downloading our Formula Checklist. This is another step towards changing your life with the power of wholesale. We truly believe that by using our formula, anyone can grow their very own

More information

COST CONCEPTS Introduction: Cost: Types of cost: Direct cost or explicit cost:

COST CONCEPTS Introduction: Cost: Types of cost: Direct cost or explicit cost: COST CONCEPTS Introduction: A firm carries out business to earn maximum profits. Profits are the revenues collected by a business firm after production and sale of their goods and services. But to gain

More information

A Model of Monopoly. Monopoly Profit Maximization. The Monopolist s Price and Output Numerically. The Monopolist s Price and Output Numerically

A Model of Monopoly. Monopoly Profit Maximization. The Monopolist s Price and Output Numerically. The Monopolist s Price and Output Numerically A Model of Monopoly Monopoly Profit Maximization How much should the monopolistic firm choose to produce if it wants to maximize profit? Chapter 15-3 The Monopolist s and The first thing to remember is

More information

a) Describe the main factors in classifying costs as either relevant or irrelevant for management decision-making purposes.

a) Describe the main factors in classifying costs as either relevant or irrelevant for management decision-making purposes. Chapter 5 Solutions Solution 5.1 a) Describe the main factors in classifying costs as either relevant or irrelevant for management decision-making purposes. The function of decision-making is to select

More information

ECON 102 Brown Final Exam (New Material) Practice Exam Solutions

ECON 102 Brown Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Brown Final Exam (New Material) Practice Exam Solutions 1. B A very large percent of their earnings comes from economic rent 2. B Any funds left, after everyone who has a claim

More information

EXCEL PROFESSIONAL INSTITUTE. LECTURE 5 Holy

EXCEL PROFESSIONAL INSTITUTE. LECTURE 5 Holy EXCEL PROFESSIONAL INSTITUTE LECTURE 5 Holy Q1. a) Investment Appraisal Lecture 10 &11 i. Types of Investment and Capital Expenditure ii. Objectives of Investment appraisal iii. Investment Appraisal Techniques

More information

Example: AB s factory has been making 1,000 units a year of a product. Last years costs were: $ Direct labour 2,000 Direct materials 3,000 Factory ind

Example: AB s factory has been making 1,000 units a year of a product. Last years costs were: $ Direct labour 2,000 Direct materials 3,000 Factory ind Marginal Costing A Marginal costing system only includes VARIABLE costs when arriving at cost per unit produced. Marginal costing and decision making Total cost includes not only marginal costs but an

More information