Herschel Candy Co. produces a single product: chocolate almond bar that sells for $0.40 per bar

Herschel Candy Co. produces a single product: chocolate almond bar that sells for $0.40 per bar. Variable costs for each bar (sugar, chocolate, almonds, wrapper and labor) total $0.25. Total Mo. Fixed costs are $60,000. Last month, bar sales reached 1 million. Herschel’s President wants to increase company’s profitability by following options:
1) increase advertising
2) Increase quality of bar’s ingredients and simultaneously increase selling price
3) Increase selling price with no change in ingredients

a) Sales mgr. is confident intensive advertising campaign will double sales volume. If co.’s president goal is to increase this month’s profits by 50% over last month’s, what is max. amt. that can be spent on advertising that doubles sales volume?
b) Assume company increases quality of ingredients, thus increasing variable costs to $.30 per bar. By how much must selling price per unit be increased to maintain same breakeven point in units?
c) Assume next that company has decided to increase its selling price to $0.50 per bar with no change in advertising or ingredients. Compute sales volume in units that would be needed at new price for company to earn same profit as it earned last month.

Click here for the SOLUTION

Posted in Homework Help | Comments Off

Duif Company’s absorption costing income statement for the last year of operations is presented below

Duif Company’s absorption costing income statement for the last year of operations is presented below:

Sales…………………………………………………$70,000
Less cost of goods sold:
Beginning inventory………………………………………. 0
Add cost of goods manufactured………………48,000
Goods available for sale………………………….48,000
Less ending inventory………………………………6,000
Cost of goods sold………………………………..42,000
Gross margin……………………………………….28,000
Less selling & admin. expenses………………..25,000
Net operating income…………………………..$ 3,000

Data on units produced and sold for the year are given below:
Units in beginning inventory……………………………..0
Units produced……………………………………….8,000
Units sold………………………………………………7,000

Fixed factory overhead totaled $16,000 for the year. This overhead was applied to products at a rate of $2 per unit. Variable selling and administrative expenses were $3 per unit sold.

Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.

Click here for the SOLUTION

Posted in Absorption Costing, accounting, cost of goods manufactured, cost of goods sold, ending inventory, gross margin, income statement, Variable Cost | Comments Off

Collins Office Supplies is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible

Collins Office Supplies is considering a more liberal credit policy to increase sales, but expects that 9 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, production and selling costs are 78 percent, and accounts receivable turnover is five times. Assume income taxes of 30 percent and an increase in sales of $80,000. No other asset buildup will be required to service the new accounts.
a. What is the level of accounts receivable needed to support this sales expansion?
b. What would be Collins’s incremental aftertax return on investment?
c. Should Collins liberalize credit if a 15 percent aftertax return on investment is required?
Assume Collins also needs to increase its level of inventory to support new sales and that inventory turnover is four times.
d. What would be the total incremental investment in accounts receivable and inventory to support an $80,000 increase in sales?
e. Given the income determined in part b and the investment determined in part d, should Collins extend more liberal credit terms?

Click here for the SOLUTION

Posted in Axia, CheckPoint, Collins Office Supplies, Credit Policy Decisions, Fin 200, Foundations of Financial Management, solution, University of Phoenix, UoP, Week 6 | Comments Off

Midland Chemical Co is negotiating a loan from Manhattan Bank and Trust

Midland Chemical Co. is negotiating a loan from Manhattan Bank and Trust. The small chemical company needs to borrow $500,000. The bank offers a rate of 8¼ percent with a 20 percent compensating balance requirement, or as an alternative, 9¾ percent with additional fees of $5,500 to cover services the bank is providing. In either case the rate on the loan is floating (changes as the prime interest rate changes), and the loan would be for one year.
a. Which loan carries the lower effective rate? Consider fees to be the equivalent of other interest.
b. If the loan with a 20 percent compensating balance requirement were to be paid off in 12 monthly payments, what would the effective rate be? (Principal equals amount borrowed minus the compensating balance.)
c. Assume the proceeds from the loan with the compensating balance requirement will be used to take cash discounts. Disregard part b about installment payments and use the loan cost from part a. If the terms of the cash discount are 1.5/10, net 50, should the firm borrow the funds to take the discount?
d. Assume the firm actually takes 80 days to pay its bills and would continue to do so in the future if it did not take the cash discount. Should it take the cash discount?
e. Because the interest rate on the loans is floating, it can go up as interest rates go up. Assume that the prime rate goes up by 2 percent and the quoted rate on the loan goes up the same amount. What would then be the effective rate on the loan with compensating balances? Convert the interest to dollars as the first step in your calculation.
f. In order to hedge against the possible rate increase described in part e, Midland decides to hedge its position in the futures market. Assume it sells $500,000 worth of 12-month futures contracts on Treasury bonds. One year later, interest rates go up 2 percent across the board and the Treasury bond futures have gone down to $488,000. Has the firm effectively hedged the 2 percent increase in interest rates on the bank loan as described in part e? Determine the answer in dollar amounts.

Click here for the SOLUTION

Posted in Homework Help | Comments Off

The following defined pension data of Rydell Corp. apply to the year 2010

The following defined pension data of Rydell Corp. apply to the year 2010. For 2010, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.
Projected benefit obligation, 1/1/10 (before amendment) $560,000
Plan assets, 1/1/10 546,200
Pension liability 13,800
On January 1, 2010, Rydell Corp., through plan amendment,
grants prior service benefits having a present value of 120,000

Settlement rate 9%
Service cost 58,000
Contributions (funding) 65,000
Actual (expected) return on plan assets 52,280
Benefits paid to retirees 40,000
Prior service cost amortization for 2010 17,000

Instructions:
For 2010, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.

Click here for the SOLUTION

Posted in Homework Help | Comments Off

ACCT 320 Midterm Exam Intermediate Accounting II – The primary reason for the popularity of LIFO is that it

1.    The primary reason for the popularity of LIFO is that it:
A. Provides better matching of physical flow and cost flow.
B. Saves income taxes currently.
C. Simplifies recordkeeping.
D. Provides a permanent reduction of income taxes.

2.     The use of LIFO during a long inflationary period can result in:
A. A net increase in income tax expense.
B. An inflated balance sheet.
C. Significant cash flow advantages over FIFO.
D. A reduction in inventory turnover over FIFO.

3.    The Mateo Corporation’s inventory at December 31, 2013, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following:

▪ Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on December 30, 2013, was received on January 5, 2014.
▪ Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2013, was received on January 3, 2014.
▪ Merchandise costing $38,000 was shipped to a customer f.o.b. destination on December 28, arrived at the customer’s location on January 6, 2014.
▪ Merchandise costing $12,000 was being held on consignment by Traynor Company.

What amount should Mateo Corporation report as inventory in its December 31, 2013, balance sheet?
A. $367,000.
B. $427,000.
C. $405,000.
D. $325,000.

4.    Northwest Fur Co. started 2013 with $94,000 of merchandise inventory on hand. During 2013, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.
What is ending inventory assuming Northwest uses the gross method to record purchases?
A. $112,490.
B. $112,550.
C. $116,500.
D. $120,300.

5.    Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?
A. $492,500.
B. $496,500.
C. $490,500.
D. $492,550.
6.    Masterlink Co., in applying the lower of cost or market method, reports its inventory at net realizable value. Which of the following statements is correct?

A. Option a
B. Option b
C. Option c
D. Option d
Texas Petrochemical reported the following April activity for its VC-30 lubricant, which had a balance of 300 qts. @ $2.40 on April 1.

7.    The ending inventory assuming LIFO and a periodic inventory system is:
A. $1,580.
B. $1,510.
C. $1,575.
D. $1,470.

8. Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows:

What should be the carrying value of Montana’s inventory?
A. $600,000.
B. $520,000.
C. $590,000.
D. $510,000.

On July 10, 2013, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2014. The company’s fiscal year-end is December 31. The contract was exercised on February 1, 2014, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2013, was $180,000. The company uses a perpetual inventory system.
9. How much loss on purchase commitment will Johnson recognize in 2013?
A. $10,000.
B. $20,000.
C. $30,000.
D. None.

Sullivan Corporation has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:

10. What should be the carrying value of Sullivan’s inventory?
A. $500,000.
B. $440,000.
C. $430,000.
D. $490,000.

11. What should be the carrying value of Sullivan’s inventory if the company prepares its financial statements according to International Financial Reporting Standards?
A. $500,000.
B. $440,000.
C. $430,000.
D. $490,000.
12. Asset retirement obligations:
A. Increase the balance in the related asset account.
B. Are measured at fair value in the balance sheet.
C. Are liabilities associated with the restoration of a long-term asset.
D. All of the above are correct.

13. When selling property, plant, and equipment for cash:
A. The seller recognizes a gain or loss for the difference between the cash received and the fair value of the asset sold.
B. The seller recognizes a gain or loss for the difference between the cash received and the book value of the asset sold.
C. The seller recognizes losses, but not gains.
D. None of the above.
14. Which of the following does not pertain to accounting for asset retirement obligations?
A. They accrete (increase over time) at the company’s credit-adjusted risk-free rate.
B. They must be recognized according to GAAP.
C. Statement of Financial Accounting Concepts No. 7 is applied when adjusting cash flow obligations for uncertainty.
D. All of the above pertain to accounting for asset retirement obligations.

15. Holiday Laboratories purchased a high-speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000. The capitalized cost is:
A. $455,000.
B. $446,000.
C. $437,000.
D. $435,000.

Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively.
16. Assuming that the exchange has commercial substance, Alamos would record a gain/(loss) of:
A. $26,000.
B. $8,000.
C. $(8,000).
D. $0.

Below is information relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.

17. In Case B, Grand Forks would record a gain/(loss) of:
A. $5,000.
B. $3,000.
C. $(5,000).
D. $(3,000).
18. Software development costs are capitalized if they are incurred:
A. Prior to the point at which technological feasibility has been established.
B. After commercial production has begun.
C. After technological feasibility has been established but prior to the product availability date.
D. None of the above is correct.

19. Interest is eligible to be capitalized as part of an asset’s cost, rather than being expensed immediately, when:
A. The interest is incurred during the construction period of the asset.
B. The asset is a discrete construction project for sale or lease.
C. The asset is self-constructed, rather than acquired.
D. All of the above are correct.

20. Research and development expense for a given period includes:
A. The full cost of newly acquired equipment that has an alternative future use.
B. Depreciation on a research and development facility.
C. Research and development conducted on a contract basis for another entity.
D. Patent filing and legal costs.

21. Cromartie Ltd. prepares its financial statements according to International Financial Reporting Standards. During 2013 the company incurred $1,245,000 in research expenditures to develop a new product. An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable. The project was successfully completed and the new product was patented before the end of the 2013 fiscal year. Sale of the product began in 2012. What amount of the above expenditures would Cromartie expense in its 2013 income statement?
A. $2,001,000.
B. $756,000.
C. $1,245,000.
D. $0.

22. Assuming an asset is used evenly over a four-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year?
A. Straight-line.
B. Units-of-production.
C. Double-declining balance.
D. Sum-of-the-year’s digits.
Cutter Enterprises purchased equipment for $72,000 on January 1, 2013. The equipment is expected to have a five-year life and a residual value of $6,000.

23. Using the straight-line method, the book value at December 31, 2013, would be:
A. $57,600.
B. $51,600.
C. $58,800.
D. $52,800.

24. Using the double-declining balance method, depreciation for 2013 and the book value at December 31, 2013, would be:
A. $26,400 and $45,600.
B. $28,800 and $43,200.
C. $28,800 and $37,200.
D. $26,400 and $36,600.

Archie Co. purchased a framing machine for $45,000 on January 1, 2013. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years.
25. Using the straight-line method, depreciation for 2013 and book value at December 31, 2013, would be:
A. $10,000 and $30,000.
B. $11,250 and $28,750.
C. $10,000 and $35,000.
D. $11,250 and $33,750.

26. Using the straight-line method, depreciation for 2014 and book value at December 31, 2014, would be:
A. $10,000 and $20,000.
B. $10,000 and $25,000.
C. $11,250 and $17,500.
D. $11,250 and $22,500.

27. Using the double-declining balance method, depreciation for 2013 and book value at December 31, 2013, would be:
A. $22,500 and $22,500.
B. $22,500 and $17,500.
C. $20,000 and $25,000.
D. $20,000 and $20,000.

28. Using the sum-of-the-years’-digits method, depreciation for 2013 and book value at December 31, 2013, would be:
A. $18,000 and $27,000.
B. $16,000 and $29,000.
C. $16,000 and $24,000.
D. $18,000 and $22,000.
29. Classifying liabilities as either current or long-term helps creditors assess:
A. Profitability.
B. The relative risk of a firm’s liabilities.
C. The degree of a firm’s liabilities.
D. The amount of a firm’s liabilities.

30. In January 2013, Vega Corporation purchased a patent at a cost of $200,000. Legal and filing fees of $50,000 were paid to acquire the patent. The company estimated a 10-year useful life for the patent and uses the straight-line amortization method for all intangible assets. In 2016, Vega spent $40,000 in legal fees for an unsuccessful defense of the patent. The amount charged to income (expense and loss) in 2016 related to the patent should be:
A. $40,000.
B. $65,000.
C. $215,000.
D. $25,000.

31. The manufacturing facility is:
A. Impaired because its book value exceeds undiscounted future cash flows.
B. Not impaired because its book value exceeds undiscounted future cash flows.
C. Not impaired because it continues to produce revenue.
D. Impaired because its book value exceeds fair value.

At the end of its 2013 fiscal year, a triggering event caused Janero Corporation to perform an impairment test for one of its manufacturing facilities. The following information is available:

32. Jane’s Donut Co. borrowed $200,000 on January 1, 2013, and signed a two-year note bearing interest at 12%. Interest is payable in full at maturity on January 1, 2015. In connection with this note, Jane’s should report interest expense at December 31, 2013, in the amount of:
A. $0.
B. $24,000.
C. $48,000.
D. $50,880.
33. The key accounting considerations relating to accounts payable are:
A. Determining their existence and ensuring that they are recorded in the appropriate accounting period.
B. Determining their present value and ensuring that they are recorded in the appropriate accounting period.
C. Determining their existence and determining the correct amount.
D. Determining the present value of the principal and the amount of the interest.

34. Which of the following may create employer liabilities in connection with their payrolls?
A. Employee withholding taxes.
B. Employee voluntary deductions.
C. Employee fringe benefits.
D. All of the above are correct

35. Oklahoma Oil Corp. paid interest of $785,000 during 2013, and the interest payable account decreased by $125,000. What was interest expense for the year?
A. $910,000.
B. $660,000.
C. $555,000.
D. $785,000.

36. Which of the following is a contingency that should be accrued?
A. The company is being sued and a loss is reasonably possible and reasonably estimable.
B. The company deducts life insurance premiums from employees’ paychecks.
C. The company offers a two-year warranty and the expenses can be reasonably estimated.
D. It is probable that the company will receive $100,000 in settlement of a lawsuit.
37. All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period?
A. Large increase, because unearned revenue becomes revenue when revenue is earned.
B. Large decrease, because unearned revenue implies that less revenue has been earned, which reduces future revenue.
C. No effect, because unearned revenue is a liability, so payment will use assets rather than providing revenue.
D. Large decrease, because unearned revenue indicates collection problems that will reduce net revenues in future periods.
38. Kline Company refinanced current debt as long-term debt on January 5, 2014. Kline’s fiscal year ended on December 31, 2013, and its financial statements will be issued sometime in early March 2014. Under IFRS, how would Kline classify the debt on its December 31, 2013, balance sheet?
A. In the “mezzanine” between current and noncurrent liabilities.
B. Kline would not classify the debt as current or noncurrent, but rather would write a disclosure note explaining the circumstances.
C. As a noncurrent liability.
D. As a current liability.

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2013. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.

39. What is the stated annual rate of interest on the bonds?
A. 3%.
B. 4%.
C. 6%.
D. 8%.

40. What is the effective annual rate of interest on the bonds?
A. 3%.
B. 4%.
C. 6%.
D. 8%

41. When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is:
A. Less than the effective interest.
B. Equal to the effective interest.
C. Greater than the effective interest.
D. More than if the bonds had been sold at a discount.

42. When bonds are retired prior to their maturity date:
A. GAAP has been violated.
B. The issuing company probably will report an ordinary gain or loss.
C. The issuing company probably will report an extraordinary gain or loss.
D. The issuing company will report a non-operating gain or loss.

43.When a company issues bonds between interest dates, the entry to record the issuance of the bonds will:
A. Include a credit to interest payable.
B. Include a debit to interest expense.
C. Include a debit to cash that has been reduced by interest accrued from the last interest date.
D. Include a debit to cash that has been increased by interest that will accrue from sale to the next interest date.

44. A $500,000 bond issue sold for 98. Therefore, the bonds:
A. Sold at a discount because the stated rate of interest was lower than the effective rate.
B. Sold for the $500,000 face amount less $10,000 of accrued interest.
C. Sold at a premium because the stated rate of interest was higher than the yield rate.
D. Sold at a discount because the effective interest rate was lower than the face rate.

45. When bonds include detachable warrants, what is the appropriate accounting for the cash proceeds from the bond issue?
A. The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values.
B. The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative face values.
C. A nominal amount is allocated to the warrants.
D. All of the proceeds are allocated to the bonds.

 Here’s the SOLUTION

Posted in Homework Help | Comments Off

The following information pertains to a non-cancelable lease agreement between Kimono Leasing Company (A+ Guaranteed)

The following information pertains to a non-cancelable lease agreement between Kimono Leasing Company (lessor) and Clayton Company (lessee).

 

 

Date/Amount               Transaction/Information                                 

 

January 1, 2014          Lease Inception date with annual lease payment due at the beginning of each year starting with January 1, 2014.

 

 $81,365                      Annual lease payment due at the beginning of each year starting with January 1, 2014.

 

 $50,000                      Residual value of equipment at end of lease term; amount  is  guaranteed by the lessee.

 

 6 years                       Lease term

 

 6 years                       Economic life of leased equipment

 

 $400,000                   Fair value of asset at January 1, 2014

 

 12%                           Lessor’s implicit rate

 

 12%                           Lessee’s incremental borrowing rate

 

 $4,000                       Executory costs per year which the lessee assumes responsibility to pay.In addition to the above information, the asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment.

 

 Required

 

 Use the spreadsheet Lease Amort Schedule to prepare an amortization schedule that would be suitable for the lessee for the lease term.

 

Using the spreadsheet Journal Entries to prepare the journal entries for the lessee for 2014 and 2015 to record the lease agreement and all expenses related to the lease. Assume the lessee’s annual accounting period ends on December 31 and that reversing entries are used when appropriate.

 

Here’s the SOLUTION

Posted in Homework Help | Comments Off

BUS 640 Week 2 Assignment – Consumer Demand Analysis and Estimation Applied Problems (A+ Guaranteed)

BUS 640 Week 2 Assignment – Consumer Demand Analysis and Estimation Applied Problems

Please complete the following two applied problems:

Problem 1:

Patricia is researching venues for a restaurant business. She is evaluating three major attributes that she considers important in her choice: taste, location, and price. The value she places on each attribute, however, differs according to what type of restaurant she is going to start. If she opens a restaurant in a suburban area of Los Angeles, then taste is the most important attribute, three times as important as location, and two times as important as price. If she opens a restaurant in the Los Angeles metropolitan area, then location becomes three times as important as taste and two times as important as price. She is considering two venues, respectively, a steak restaurant and a pizza restaurant, both of which are priced the same. She has rated each attribute on a scale of 1 to 100 for each of the two different types of restaurants.

Attribute                    Steak Restaurant               Pizza Restaurant
            Taste                                     80                                            70

 

Location                               55                                            80

           Price                                      65                                            50

Show all of your calculations and processes. Describe your answer for each question in complete sentences.

a. Which of the two options should Patricia pursue if she wants to open a restaurant in a suburban area of Los Angeles? Calculate the total expected utility from each restaurant option and compare. Graph is not required. Describe your answer, and show your calculations.

b. Which of the two options should she pick if she plans to open a restaurant in the Los Angeles metropolitan area? Describe your answer, and show your calculations.

c. Which option should she pursue if the probability of finding a restaurant venue in a suburban area can be reliably estimated as 0.7 and in a metropolitan area as 0.3? Describe your reasoning and show your calculations.

d. Provide a description of a scenario in which this kind of decision between two choices, based on weighing their underlying attributes, applies in the “real-world” business setting. Furthermore, what are the benefits and drawbacks, if any, to this method of decision making?

Problem 2:

The demand function for Newton’s Donuts has been estimated as follows:

Qx = -14 – 54Px + 45Py + 0.62Ax

where Qx represents thousands of bagels; Px is the price per bagel; Py is the average price per bagel of other brands of bagels; and Ax represents thousands of dollars spent on advertising Newton’s Donuts. The current values of the independent variables are Ax=120, Px=0.95, and Py=0.64.

Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.

a. Calculate the price elasticity of demand for Newton’s Donuts and describe what it means. Describe your answer and show your calculations.

b. Derive an expression for the inverse demand curve for Newton’s Donuts. Describe your answer and show your calculations

c. If the cost of producing Newton’s Donuts is constant at $0.15 per donut, should they reduce the price and thereafter, sell more donuts (assuming profit maximization is the company’s goal)?

d. Should Newton’s Donuts spend more on advertising?

Here’s the SOLUTION

Posted in Homework Help | Comments Off

The demand function for Newton’s Donuts has been estimated as follows (A+ Guaranteed)

The demand function for Newton’s Donuts has been estimated as follows:

Qx = -14 – 54Px + 45Py + 0.62Ax

where Qx represents thousands of bagels; Px is the price per bagel; Py is the average price per bagel of other brands of bagels; and Ax represents thousands of dollars spent on advertising Newton’s Donuts. The current values of the independent variables are Ax=120, Px=0.95, and Py=0.64.

Show all of your calculations and processes. Describe your answer for each question in complete sentences, whenever it is necessary.
a.    Calculate the price elasticity of demand for Newton’s Donuts and describe what it means. Describe your answer and show your calculations.

b.    Derive an expression for the inverse demand curve for Newton’s Donuts. Describe your answer and show your calculations.

c.    If the cost of producing Newton’s Donuts is constant at $0.15 per donut, should they reduce the price and thereafter, sell more donuts (assuming profit maximization is the company’s goal)?

d.    Should Newton’s Donuts spend more on advertising?

 

Here’s the SOLUTION

Posted in Homework Help | Comments Off

Patricia is researching venues for a restaurant business. She is evaluating three major attributes (A+ Guaranteed)

Patricia is researching venues for a restaurant business. She is evaluating three major attributes that she considers important in her choice: taste, location, and price. The value she places on each attribute, however, differs according to what type of restaurant she is going to start. If she opens a restaurant in a suburban area of Los Angeles, then taste is the most important attribute, three times as important as location, and two times as important as price. If she opens a restaurant in the Los Angeles metropolitan area, then location becomes three times as important as taste and two times as important as price. She is considering two venues, respectively, a steak restaurant and a pizza restaurant, both of which are priced the same. She has rated each attribute on a scale of 1 to 100 for each of the two different types of restaurants.

Attribute        Steak Restaurant        Pizza Restaurant
Taste                80                                 70
Location               55                                 80
Price                     65                                 50

Show all of your calculations and processes. Describe your answer for each question in complete sentences.

a.    Which of the two options should Patricia pursue if she wants to open a restaurant in a suburban area of Los Angeles? Calculate the total expected utility from each restaurant option and compare. Graph is not required. Describe your answer, and show your calculations.

b.    Which of the two options should she pick if she plans to open a restaurant in the Los Angeles metropolitan area? Describe your answer, and show your calculations.

c.    Which option should she pursue if the probability of finding a restaurant venue in a suburban area can be reliably estimated as 0.7 and in a metropolitan area as 0.3? Describe your reasoning and show your calculations.

d.    Provide a description of a scenario in which this kind of decision between two choices, based on weighing their underlying attributes, applies in the “real-world” business setting. Furthermore, what are the benefits and drawbacks, if any, to this method of decision making?

 

Here’s the SOLUTION

 

Posted in Homework Help | Comments Off