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ECO 425 Homework 6 Lessons 11 and 12 Answer

Economics 425

Homework 6

Lessons 11 and 12

1.(10 points)Consider two metropolitan areas, one that has many small school districts and one that has only a few large school districts. In a paragraph, what are the efficiency and equity effects of introducing a voucher system likely to differ across these two areas?
2.(30 points) Suppose the town of State College has three families, each with one child, and each of which earns $20,000 per year (pre-tax). Each family is taxed $4,000 per year to finance the public school system in the town, which any family can then freely attend. Education spending is $6,000 per student in the public schools. The three families differ in their preferences for education. Though families A and B both send their children to the public school, family B places a greater value on education than family A. Family C places the greatest relative value on education and sends its child to private school.
1.Graph the budget constraints facing each of the three families and draw a possible indifference curve which could correspond to the choice each family makes.

The city council is considering replacing its current system with a voucher system. Under the new system, each family would receive a $6,000 voucher for education, and families would still be able to send their children to the same public school. Since this would be more costly than the current system, they would also raise taxes to $6,000 per household to pay for it.
1.Draw the budget constraint the families would face under this system.

Suppose that, when the new system is introduced, family A continues to send their child to public school, but family B now sends their child to private school (along with family C’s child).
1.Explain how you know that family C is made better off and family A is made worse off by the voucher policy.
2.Show, using a diagram, that it is ambiguous whether B would be made better or worse off under the policy.


1.(10 points) In business, there is a tension between the principals (shareholders/owners) and agents (managers). The managers may choose policies that increase short-term profitability (and their bonuses) at the expense of long-term profitability. In a paragraph, describe why the same types of problems may exist in government as well, where elected officials are the agents and voters are the principals.
2.(20 points) Voters rarely get to choose the exact level of spending on a public good. Instead, they are provided with two options—a proposed spending level posed by the government and a default (or “reversion”) level that would be enacted if the proposal were rejected by voters. The “Leviathan” theory of bureaucracy states that governments will select intentionally large proposed spending levels and default levels that are well below the desired level of spending. In a paragraph (or two) explain why this behavior is consistent with a size-maximizing government?
3.(30 points) “Logrolling” is a phenomenon in which elected representatives trade votes with one another. For instance, Representative A may be willing to vote for Representative B’s prefered policy, even if A doesn’t like it, provided that B will vote for Representative A’s prefered policy, even if B doesn’t like it.
4.Suppose we have the follwing three projects up for vote: A naval ship, a hospital, and a park. There are three representatives who will individually vote on the projects. The net social benefits to the constituents of each representative are given in the table below. Note these benefits may be negative, meaning that the policy actually does harm to the constituents of the representative.

Project John Dennis Susan
Naval Ship 200 -75 -40
Hospital -40 150 -25
Park -100 -80 360



What are the total benefits from each project?
1.If a vote were held for each project, what would be the result for each project? Is this socially optimal?
2.If these reperesentatives were to logroll (trade votes) to get their prefered policy to pass, what would be the result? (Hint: one of these representatives will be disappointed.)
3.Is the final result from c) an improvement over the outcome of b)? Is it optimal?
4.As hinted, one of the representatives will be left out of the logrolling. In principal, is there anything else that representative can do to get his/her prefered policy passed?
5.Now suppose the benefits looked like this:

Project John Dennis Susan
Naval Ship 200 -170 -90
Hospital -100 150 -80
Park -250 -130 360


What are the total benefits from each project?
1.If a vote were held for each project, what would be the result for each project? Is this socially optimal?
2.If these reperesentatives were to logroll (trade votes) to get their prefered policy to pass, what would be the result?
3.Is the final result from h) an improvement over the outcome of g)?
4.What conclusions, if any, can we make about the practice of logrolling from these examples?


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ECO 425 Homework 6 Lessons 11 and 12 Answer

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Separate the current assets from non-current assets and provide a total for each Answer

Required: 1. Using the information provided prepare a Balance Sheet. Separate the current assets from non-current assets and provide a total for each. Also separate the current liabilities from the non-current liabilities and provide a total for each. 2. Using the Balance Sheet from your answer above calculate;


Balance Sheet      
Cash 8,442    
Short-term Investments and Marketable Securities 8,109    
Receivables 4,812    
Allowance for Doubtful Accounts -53    
Prepaid Expenses 2,781    
Inventories 3,264    
Other Current Assets 2,973    
Total Current Assets   30328  
Long-term Investments 10,448    
Property, Plant and Equipment 23,486    
Accumulated Depreciation -9,010    
Trademarks 6,527    
Other Intangible Assets 20,810    
Other Non-current Assets 3,585    
Total Non Current Assets 55,846 55846  
Total Assets   86174  
Liabilities and SHE      
Income Taxes Payable $471    
Accounts Payable 8,680    
Short Term Notes Payable 17,874    
Other Current Liabilities 796    
Current Liabilities   27821  
Long-Term Liabilities 14,736    
Other non-current Liabilities 10,449    
Common Stock 1,760    
Non current Liabilities   26,945  
Total Liabilities   54,766  
Shareholders’ Equity      
Paid-in-Capital in Excess of Par Value 11,379    
Retained Earnings 55,038    
Treasury Stock -35,009    
Total SHE   31,408  
Liabilities and SHE   86,174  
Current Ratio,   1.09 30328/27821
Days in Inventory,   60.89 365*3178.5/19053
Average Collection Period,   36.79 365*4839.5/48017
Return on Assets Ratio,   10.86% 9019/83074
Debt to Total Assets and   63.55% 54766/86174
Return on common stockholders’ equity   28.48% 9019/31664.5


Required: Using the information provided above: 1. Prepare a multiple-step income statement 2. Calculate the Profit Margin, and Gross profit rate for the company. Be sure to provide the formula you are using, show your calculations, and discuss your findings/results.


(Points : 36)


Income Statement  
Net Sales 466,114
Cost of Goods Sold 352,488
Gross Profit 113,626
Operating, Selling and Administrative Expenses 88,873
Operating Profit 24,753
add other Income  
Membership Revenues 3048
Earnings before interest and taxes 27,801
#REF! 2,064
Earnings before taxes 25,737
less Taxes 7981
Net Income 17,756
Gross profit/Sales  
113626/466114 24.38%
Net Income /Sales  
17756/466114 3.81%


The gross profit margin is around 24%, while the net profit margin is around 4%. It shows that the profit margin available to recover operating expenses which is around 24% and after deduction of operating expense, only 4% of sales are available; it shows that 20% has been used to meet operating expenses.


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MGMT 640 Financial Decision Making for Managers Final Exam Part 2 Answer

MGMT 640 Financial Decision Making for Managers Final Exam Part 2 Answer

MGMT 640 Financial Decision Making for Managers Final Exam Part 2 Answer

Final Exam Part 2

Question 1
Maxx Inc. has provided the following data from its activity-based costing system:
Activity Cost Pools Total Cost Total Activity
Designing products $377,200 6,600 product design hours
Setting up batches $52,678 7366 batch set-ups
Assembling products $25,122 4,018 assembly hours
The activity rate for the “designing products” activity cost pool is:

Question 2
Sasha Company allocates the estimated $184,800 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows:
Department Employees
Accounting 4
Production 35
Sales 13
How much of the accounting department costs will be allocated to the production?

Question 3 0 / 1 point
Medusa Company allocates costs from the payroll department (S1) and the maintenance department (S2) to the molding (P1), finishing (P2), and packaging (P3) departments. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet which the production department occupies within the factory. Information about the departments is presented below:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll (S1) $148,000 2 2,000
Maintenance (S2) $220,000 8 64,000
Molding (P1) 71 100,000
Finishing (P2) 49 60,000
Packaging (P3) 21 40,000
Medusa uses the direct method to allocate costs. Round all answers to the nearest dollar.
What amount of the payroll department costs will be allocated to the molding department?

Question 4
The Manassas Company has 55 obsolete keyboards that are carried in inventory at a cost of $9,600. If these keyboards are upgraded at a cost of $7,600, they could be sold for $18,700. Alternatively, the keyboards could be sold “as is” for $7,800. What is the net advantage or disadvantage of re-working the keyboards?

Question 5
Ritz Company sells fine collectible statues and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping and Rand has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected and shipped. The final cost pool is used for general operations and supervision of the department and the cost driver is the number of shipments. Information about the department is summarized below:
Cost Pool Total Costs Cost Driver Annual Activity
Packaging and shipping $169,500 Number of boxes shipped 21,400 boxes
Final inspection $195,900 Number of individual items shipped 96,400 items
General operations and supervision $82,000 Number of orders 9,300 orders
During the period, the Far East sales office generated 659 orders for a total of 6,160 items. These orders were shipped in 1,345 boxes. What amount of shipping department costs should be allocated to these sales?

Question 6
Baller Financial is a banking services company that offers many different types of checking accounts. The bank has recently adopted an activity-based costing system to assign costs to their various types of checking accounts. The following data relate to the money market checking accounts, one of the popular checking accounts, and the ABC cost pools:
Annual number of accounts = 56,000 accounts Checking account cost pools:
Cost Pool Cost Cost Drivers
Returned check costs $2,710,000 Number of returned checks
Checking account reconciliation costs 51,000 Number of account reconciliation requests
New account setup 640,000 Number of new accounts
Copies of cancelled checks 378,000 Number of cancelled check copy requests
Online banking web site maintenance 187,000 Per product group (type of account)

Annual activity information related to cost drivers:
Cost Pool All Products Money Market Checking
Returned check 200,000 returned checks 18,000
Check reconciliation costs 378,000 checking account 420
New accounts 56,000 new accounts 15,000
Cancelled check copy requests 98,000 cancelled check 60,000
Web site costs 5 types of accounts 1

Calculate the overhead cost per account for the Money Market Checking.

Question 7
Sosa Company has $39 per unit in variable costs and $1,900,000 per year in fixed costs. Demand is estimated to be 138,000 units annually. What is the price if a markup of 35% on total cost is used to determine the price?

Question 8
Bob’s Company sells one product with a variable cost of $5 per unit. The company is unsure what price to charge in order to maximize profits. The price charged will also affect the demand. If fixed costs are $100,000 and the following chart represents the demand at various prices, what price should be charged in order to maximize profits?
Units Sold Price
30,000 $10
40,000 $9
50,000 $8
60,000 $7





Question 9
A retailer purchased some trendy clothes that have gone out of style and must be marked down to 30% of the original selling price in order to be sold. Which of the following is a sunk cost in this situation?

the original selling price

the anticipated profit

the original purchase price

the current selling price

Question 10 0 / 1 point
Carlton Products Company has analyzed the indirect costs associated with servicing its various customers in order to assess customer profitability. Results appear below:
Cost Pool Annual Cost Cost Driver Annual Driver Quantity

Processing electronic orders $1,000,000 Number of orders 500,000
Processing non-electronic orders $2,000,000 Number of orders 400,000
Picking orders $3,000,000 Number of different products ordered 800,000
Packaging orders $1,500,000 Number of items ordered 50,000,000
Returns $2,000,000 Number of returns 50,000
If all costs were assigned to customers based on the number of items ordered, what would be the cost per item ordered?

Question 11
Costa Company has a capacity of 40,000 units per year and is currently selling 35,000 for $400 each. Barton Company has approached Costa about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Costa $20 per unit when compared to the normal packaging cost. Normally, Costa has a variable cost of $280 per unit. The annual fixed cost of $2,000,000 would be unaffected by the special order. What would be the impact on profits if Costa were to accept this special order?

Profits would increase $40,000.

Profits would increase $60,000.

Profits would decrease $200,000.

Profits would increase $80,000

Question 12
A company has $7.80 per unit in variable costs and $3.60 per unit in fixed costs at a volume of 50,000 units. If the company marks up total cost by 0.55, what price should be charged if 57,000 units are expected to be sold?

Question 13
Customer profitability analysis might result in:

dropping some customers that are unprofitable.

lowering price or offering incentives to profitable customers.

giving incentives to all customers to place orders online.

All of the above.

Question 14
The Estrada Company uses cost-plus pricing with a 0.44 mark-up. The company is currently selling 100,000 units. Each unit has a variable cost of $3.70. In addition, the company incurs $195,000 in fixed costs annually. If demand falls to 77,700 units and the company wants to continue to earn a 0.44 return, what price should the company charge?

Question 15
A new product is being designed by an engineering team at Golem Security. Several managers and employees from the cost accounting department and the marketing department are also on the team to evaluate the product and determine the cost using a target costing methodology. An analysis of similar products on the market suggests a price of $121.00 per unit. The company requires a profit of 0.28 of selling price. How much is the target cost per unit?

Question 16
A company using activity based pricing marks up the direct cost of goods by 0.24 plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $7.80 per order placed; $3.60 per separate item ordered; $25.40 per return. A customer places 5 orders with a total direct cost of $3,000, orders 299 separate items, and makes 8 returns. What will the customer be charged?

Question 17
A law firm uses activity-based pricing. The company’s activity pools are as follows:
Cost Pool Annual Estimated Cost Cost Driver Annual Driver Quantity

Consultation 198,000 Number of consultations 80 consultations
Administrative Costs 140,000 Admin labor hours 9,400 labor hours
Client Service 96,000 Number of clients 110 clients
The firm had two consultations with this client and required 130 administrative labor hours. What additional costs will be charged to this customer?

Question 18
The Break-Even point is the

number of units sold that allow the company to neither a profit nor a loss

number of units sold that allow the company to pay labor their wages

dollar revenues that allows the firm to pay the required rate of return to its investors

dollar profits that allows the firm to pay the required rate of return to its investors

Question 19
Which of the following is not part of the Process of Cost Allocation

Select an allocation base to relate the cost pools to the cost objectives

Form cost pools

Identify the cost objectives

Allocate revenues to different products of the firm

Question 20
Opportunity costs are:

Never incremental costs

Always incremental costs

Sometimes sunk costs

Greater than sunk costs