The residents of cities A, B, C, D and E consume wi-fi routers, with consumption in each city is 150 routers (see the map below). The firm that produces routers must decide how to set-up production. It could set up five factories, dispersed across each city, with each factory producing 150 routers and supplying to its own local city market. In this case, the firm incurs no cost for shipping output. Alternatively, the firm could locate its factory at centrally located city C, and supply routers to the entire region. The single factory in city C must then produce 750 routers, 600 of which are shipped to the cities A, B, D and E for a shipping cost of $6 per router.
A E
C
B D
(a) Suppose the average cost of producing a router is AC (Q) = 1500/Q, where Q is the number of routers produced in a factory. Calculate AC with Q = 150 and Q = 750, respectively. Note and explain how this production process exhibit economies of scale.
(b) Based on the AC function from part (a), find the optimal arrangement of production for the firm (one central factory or five dispersed factories). The optimal arrangement minimizes total cost for the firm, where total cost is the sum of production cost and shipping cost. Clearly write down all your calculations.
(c) Now suppose the average cost of producing a router is AC = 14000/(Q+1250). Now, repeat the calculation of AC with Q = 150 and Q = 750.
(d) Based on the AC function from part (c), now repeat your calculations to find the cost-minimizing arrangement of production in the case. (e) Explain intuitively the difference is results between responses to part (b) and (d).
(f) Suppose now production costs are those given in part (a) but let shipping cost per router be given by t (in the preceding discussion, we had t = 6, now we assume we don’t know the cost of shipping). What value of t would make the two arrangements for production (centralized versus separate factories) equivalent in terms of cost? i.e. what value of t would make the firm indifferent between a centralized versus a dispersed set-up?

Answer:

a. The production process shows that the more the quantity produced, the less the average cost of production.  It proves that there are advantages arising from economies of scale.

AC with Q = 150 = $10 ($1,500/150) and

AC with Q = 750 = $2 ($1,500/750)

b. The optimal arrangement is (centralized production) to produce the 750 routers at city C and ship to the 4 other cities.

c. AC with Q = 150 = $10 (14000/(150+1250) and

AC with Q = 750 = $7 (14000/(750+1250)

d. The cost-minimizing arrangement of production in this case is decentralized production.

e. The average cost of producing 150 units at the various cities has remained unchanged while the average cost of producing the 750 units at city C has increased from $2 to $7.

f. Suppose now production costs are those given in part (a) but let shipping cost per router be given by t (in the preceding discussion, we had t = 6, now we assume we don’t know the cost of shipping).

The value of t that would make the two arrangements for production (centralized versus separate factories) equivalent in terms of cost is:

t = $10 per router

Therefore, centralized production cost will be equal to $7,500 ($1,500 + ($10 * 600), and decentralized production cost will remain at $7,500 (750 * $10).

Explanation:

a) Data and Calculations:

Cities with consumers of wi-fi routers = A, B, C, D and E

Demand for routers by each city = 150

Total number of routers required = 750 (150 * 5)

b) Suppose the average cost of producing a router is AC (Q) = 1500/Q, where Q is the number of routers produced in a factory:

Therefore AC with Q = 150 = $10 ($1,500/150) and

AC with Q = 750 = $2 ($1,500/750)

Cost of Production of routers in city C:

cost of producing 750 routers at $2 per router = $1,500

Shipping cost of 600 routers to 4 cities at $6 per router = $3,600

Total cost of producing at city C = $5,100 ($1,500 + $3,600)

Total cost of producing 750 routers at 5 cities = $7,500 ($1,500/150 * 750)

c) Suppose the average cost of producing a router is AC = 14000/(Q+1250):

Therefore, AC with Q = 150 = $10 (14000/(150+1250) and

AC with Q = 750 = $7 (14000/(750+1250)

Cost of Production of routers in city C:

cost of producing 750 routers at $7 per router = $5,250

Shipping cost of 600 routers to 4 cities at $6 per router = $3,600

Total cost of producing at city C = $8,850 ($5,250 + $3,600)

Total cost of producing 750 routers at 5 cities = $7,500 ($1,500/150 * 750)

d) $7,500 = $1,500 + tQ

where Q = 600 (150 * 4)

Therefore, $7,500 - $1,500 = t600

simplifying

t600 = $6,000

t = $6,000/600 = $10

Ben wants to do business in the Middle East where it is an accepted practice to give gifts to government officials. However, Ben may not be able to carry out his plans because he doesn't want to violate The Foreign Corrupt Practices Act (FCPA), which was enacted because Congress was concerned about _______.

During the current year, Alpha sold inventory to Beta for $100,000. As of year end, Beta had resold only 60 percent of these intra-entity purchases. Alpha sells inventory to Beta at the same markup it uses for all of its customers. What is the total for consolidated cost of goods sold

The courts ruled that the pay disparity between the sexes at Jaxon Corp. was illegal and ordered the company to remedy it. Jaxon Corp. cannot lower the wages of the higher-paid group in order to comply with the law.
True Or False

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below:
Claimjumper Makeover Total
Sales $ 30,000 $70,000 $100,000
Variable expenses 20,000 50,000 70,000
Contribution margin $ 10,000 $ 20,000 30,000
Fixed expenses 24,000
Net operating income $ 6,000
Required:
1. What is the overall contribution margin (CM) ratio for the company?
2. What is the company's overall break-even point in dollar sales?
3. Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products.

Use the following Year 3 data: Other Selling and Administrative Expenses $ 1,052,000 Other Expenses 249,300 Sales Revenue 4,887,000 Advertising and Promotion Expenses 553,350 Salaries and Wages Expense 2,527,800 Income Tax Expense 167,350 Interest Expense 114,750 Required: Prepare the annual income statement for Kvass, Inc.

You have graduated from college but unfortunately have $39,000 in outstanding loans. The loans require payments of $3,435 per year, which covers interest and principal repayment (that is, the loan has the same basic features as a mortgage). If the interest rate is 4 percent, how long will it take you to repay the debt

Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example. (If an amount reduces the account balance then enter with negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000).)

Required:
a. Purchased $133 of supplies for cash.
b. Recorded an adjusting entry to record use of $31 of the above supplies.
c. Made sales of $1,297, all on account.
d. Received $865 from customers in payment of their accounts.
e. Purchased equipment for cash, $2,528.
f. Recorded depreciation of building for period used, $610.

Beta Alpha Psi, the accounting honorary fraternity, held a homecoming party. The fraternity expected attendance of 80 persons and prepared the following budget: Room rental .. $ 170 Food ....... 660 Entertainment .. 570 Decorations ... 210 Total ...... $1,610 After Beta Alpha Psi paid all the bills for the party, the total cost came to $1,885 or $275 over budget. Details are $170 for room rental; $875 for food; $570 for entertainment; and $270 for decorations. Ninety-six persons attended the party. 1. Prepare a performance report for the party that shows how actual costs differed from the budget. That is, include in your report the budgeted amounts, actual amounts, and variances. 2. Suppose the fraternity uses a management-by-exception rule. Which costs deserve further examination

Assume General Electric Company reports the following footnote in its 10-K report. December 31 (In millions) 2016 2015 Raw materials and work in process $ 5,527 $ 5,042 Finished goods 5,152 4,806 Unbilled shipments 333 402 11,012 10,250 Less revaluation to LIFO (697) (661) $10,315 $ 9,589 The company reports its inventories using the LIFO inventory costing method. Assume GE has a 35% income tax rate. As of the 2016 year-end, how much has GE saved in taxes by choosing LIFO over FIFO method for costing inventory

Oriole Company, organized in 2019, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2020.
1/2/20 Purchased patent (7-year life) $311,500
4/1/20 Purchase goodwill (indefinite life) 355,000
7/1/20 Purchased franchise with 10-year life; expiration date 7/1/30 435,000
8/1/20 Payment of copyright (5-year life) 162,000
9/1/20 Research and development costs 225,000
$1,488,500
Required:
1. Prepare the necessary entry to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles.
2. Make the entry as of December 31, 2020, recording any necessary amortization.
3. Reflect all balances accurately as of December 31, 2020.

Webber Technologies is an emerging manufacturer of 3.5 inch diagonal touch screens for mobile communication devices/media players. 2011 industry sales were reported at 17.50 million units. This number represents an 17.7 % increase over 2010 industry sales. Webber Technologies had a 2010 market share of 5.9 %, compared with a 2011 market share of 4.2%. What was the change in unit sales for Webber Technologies, from 2010 to 2011, attributable to the change in industry sales

The following cost data relate to the manufacturing activities of Black Diamond Ski Company during 2013:
Manufacturing Overhead Costs:
Property taxes, factory $ 3,000
Utilities, factory $ 5,000
Indirect labor $10,000
Depreciation, factory $24,000
Insurance, factory $ 6,000
Total Actual Manufacturing OH Costs $48,000 Other Costs Incurred: Purchases of raw materials $32,000 Direct labor costs $40,000 The Black Diamond Ski Company used 10,200 machine hours during the period. Inventories: Raw Materials, 1/1/13 $ 8,000 Raw Materials, 12/31/13 $ 7,000 Work in Process, 1/1/13 $ 6,000 Work in Process, 12/31/13 $ 7,500 The company uses normal costing to record product costs. The company budgeted for $52,500 in total overhead costs for the year. The cost driver associated with the overhead is machine hours and the company expected to use 10,500 machine hours.
REQUIRED:
1) Compute the amount of over-applied or under-applied overhead cost for the year.
2) Determine the cost of goods manufactured for the year.

Common-size and trend percents for Rustynail Company's sales, cost of goods sold, and expenses follow. Common-Size Percents Trend Percents Current Yr 1 Yr Ago 2 Yrs Ago Current Yr 1 Yr Ago 2 Yrs Ago Sales 100.0 % 100.0 % 100.0 % 104.5 % 103.3 % 100.0 % Cost of goods sold 63.7 61.5 57.4 116.0 110.7 100.0 Total expenses 14.3 13.8 14.1 106.1 101.1 100.0 Determine the net income for the following years. Did the net income increase, decrease, or remain unchanged in this three-year period?