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Incremental Costs. Electron Control,

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1. Incremental Costs. Electron Control, Inc., sells voltage regulators to other manufacturers, who then;customize and distribute the products to quality assurance labs for their sensitive test equipment. The;yearly volume of output is 15,000 units. The selling price and cost per unit are shown below;Selling price $200;Costs;Direct material $35;Direct labor 50;Variable overhead 25;Variable selling expenses 25;Fixed selling expenses 15 150;Unit profit before tax $ 50;Management is evaluating the alternative of performing the necessary customizing to allow Electron;Control to sell its output directly to Q/A labs for $275 per unit. Although no added investment is;required in productive facilities, additional processing costs are estimated as;Direct labor $25 per unit;Variable overhead $15 per unit;Variable selling expenses $10 per unit;Fixed selling expenses $100,000 per year;A. Calculate the incremental profit Electron Control would earn by customizing its instruments;and marketing directly to end users.;2. Profit Contribution Analysis. Fisherman?s Wharf Cotton, Inc., (FWC) sells souvenir T-shirts on San Francisco?s Pier 9 at a price of $10. Of this amount, $6 is profit contribution. FWC is considering an attempt to differentiate its products from several other competitors? b using higher quality T-shirts. Doing so would increase FWC?s unit cost by $1 per shirt. Current monthly profits are $5,000 on 2,500 unit sales.;A. Assuming average variable costs are constant at all output levels, what is FWC?s total cost function before the proposed change?;B. What will the total cost functions be if higher quality T-shirts are used?;C. Assume shirt prices remain stable at $10. What percentage increase in sales would be necessary to maintain current profit levels?;3. Multiplant Operation. Tasty Snacks, Inc., a regional snack foods company (corn chips, potato chips;etc.) in the northeast, is considering two alternative proposals for expansion into southeastern states.;Alternative 1: Construct a single plant in Chattanooga, Tennessee with a monthly production capacity;of 250,000 cases, a monthly fixed cost of $265,000, and a variable cost of $45 per case. Alternative 2;Construct three plants, one each in Birmingham, Alabama, Tallahassee, Florida, and Charlotte, North;Carolina, with capacities of 100,000, 80,000 and 70,000, respectively, and monthly fixed costs of;$180,000, $150,000, and $135,000 each. Variable costs would be only $44 per case because of lower;distribution costs. To achieve these cost savings, sales from each smaller plant would be limited to;demand within its home state. The total estimated monthly sales volume of 175,000 cases in these;three southeastern states is distributed as follows: 70,000 cases in Florida, 60,000 cases in North;Carolina, and 45,000 cases in Alabama.;A. Assuming a wholesale price of $50 per case, calculate the breakeven output quantities for;each alternative.;B. At a wholesale price of $50 per case in all states, and assuming sales at the projected levels;which alternative expansion scheme provides Tasty Snacks with the highest profit per;month?;C. If sales increase to production capacities, which alternative would prove to be more;profitable?;- Sent to Economics Expert Tutor on 5/10/2010 at 11:44pm;Our Expert Tutor answered;We need you to clarify your question for our tutors!;Clarification request: Could you provide me 10 hours to work on this?;Thank you.;Please resubmit your questions below.;Andrea J.;Answered your question on 5/11/2010 at 12:58am (1 hour 13 minutes 45 seconds later);I'm Online | Verified Expert Tutor | 99.7% positive feedback | 356 answers;You asked;1. Incremental Costs. Electron Control, Inc., sells voltage regulators to other manufacturers, who then;customize and distribute the products to quality assurance labs for their sensitive test equipment. The;yearly volume of output is 15,000 units. The selling price and cost per unit are shown below;Selling price $200;Costs;Direct material $35;Direct labor 50;Variable overhead 25;Variable selling expenses 25;Fixed selling expenses 15 150;Unit profit before tax $ 50;Management is evaluating the alternative of performing the necessary customizing to allow Electron;Control to sell its output directly to Q/A labs for $275 per unit. Although no added investment is;required in productive facilities, additional processing costs are estimated as;Direct labor $25 per unit;Variable overhead $15 per unit;Variable selling expenses $10 per unit;Fixed selling expenses $100,000 per year;A. Calculate the incremental profit Electron Control would earn by customizing its instruments;and marketing directly to end users.;2. Profit Contribution Analysis. Fisherman?s Wharf Cotton, Inc., (FWC) sells souvenir T-shirts on San Francisco?s Pier 9 at a price of $10. Of this amount, $6 is profit contribution. FWC is considering an attempt to differentiate its products from several other competitors? b using higher quality T-shirts. Doing so would increase FWC?s unit cost by $1 per shirt. Current monthly profits are $5,000 on 2,500 unit sales.;A. Assuming average variable costs are constant at all output levels, what is FWC?s total cost function before the proposed change?;B. What will the total cost functions be if higher quality T-shirts are used?;C. Assume shirt prices remain stable at $10. What percentage increase in sales would be necessary to maintain current profit levels?;3. Multiplant Operation. Tasty Snacks, Inc., a regional snack foods company (corn chips, potato chips;etc.) in the northeast, is considering two alternative proposals for expansion into southeastern states.;Alternative 1: Construct a single plant in Chattanooga, Tennessee with a monthly production capacity;of 250,000 cases, a monthly fixed cost of $265,000, and a variable cost of $45 per case. Alternative 2;Construct three plants, one each in Birmingham, Alabama, Tallahassee, Florida, and Charlotte, North;Carolina, with capacities of 100,000, 80,000 and 70,000, respectively, and monthly fixed costs of;$180,000, $150,000, and $135,000 each. Variable costs would be only $44 per case because of lower;distribution costs. To achieve these cost savings, sales from each smaller plant would be limited to;demand within its home state. The total estimated monthly sales volume of 175,000 cases in these;three southeastern states is distributed as follows: 70,000 cases in Florida, 60,000 cases in North;Carolina, and 45,000 cases in Alabama.;A. Assuming a wholesale price of $50 per case, calculate the breakeven output quantities for;each alternative.;B. At a wholesale price of $50 per case in all states, and assuming sales at the projected levels;which alternative expansion scheme provides Tasty Snacks with the highest profit per;month?;C. If sales increase to production capacities, which alternative would prove to be more;profitable?;4. Competitive Equilibrium. Orange crush wiring, Inc., based in Syracuse New york" supplies standard;electrical wiring to the construction and renovator markets, Like the outpuyt of its compeditors, Orange Crush's household AWG-as wire must meet strict governmental specifications. As a result, the AWG-12 wire supply industry can be regarded as perfectly compeditive. Total marginal cost relations for Orange Crush are;TC- $3,600 +$5Q +.01Qsquared;MC =ATC/Ae=55+$0.02e;whereQ is hundredso f feet of wire produced.;A. Calculate Orange Crush's optimal output and profits if AWG-12 wire prices are stable at $20.;B. Calculate Orange Crush's optimal output and profits if AWG-12 wire prices rise to $25 each.;C. If Orange Crush is typical of firms in the industry, calculate the firm's equilibrium output, price, and;profit levels.;5.Monopoly Equilibrium. UNLV Technologies INC, enjoys an exclusinve patent on a process to atomize gasoline with platinum in combustion engines, producing substatial gains in mniles per gallon. Total and marginal revenue relations for the porcoess are;TR =$250Q-$O.O1squared;MR:(pie)TR/AQ =$250 - S0.002Q;Marginal costs for the process are stable at $150 per engine. All other costs have been fully amortized.;A. As a monopoly" calculate UNLV's output, price, and profits at the profit-marimizing activity level.;B. What price and profit levels would prevail following expiration of copyright protection based on the;assumption that perfectly competitive pricing would result?;6.Optimal Markup. Cliff Claven is a summer intern at Wicker Works, Inc., a Boston firm that distributes raw;wicker in several grades or categories. Claven has been asked to complete an analysis of profit margins for each;grade of wicker. Unfortunately,h is predecessoor in this project abruptly left the company,leaving only sketchy;information his pricing practices.;A. Use the available data to complete the following table;Wicker - B;BB;A;AA;AAA;Grade;Price per Marginal Markup Murhup;Bundle Cost on Cost on Price;-;15;20;35;45;50;b. Calculate the optimal markup on cost and optimal markup on price for each grade of wicker, based on the following estimates of the point price elasticity of demand.;Calculate the optimal markup on cost and optimal markup on price for each grade of wicker;based on the following estimates so f the point price elasticity of demand;wicker price elasticity of demand;B -1.5;BB -2.0;A -2.5;AA -3.0;AAA -5.0;The Montana Coal comapay sells coal to electric utilites in the Pacific Northwest. Unfortunatley, Montan's caol has high particualte content and therefore, the company is adversely affected by state and local regulations governing smoke and dust emissions at its customer's electricity-generating plants.;TC=$187,500+5Q +.00032squared;MC= pie TC/Pieq=$5 +.0006Q;where Q is tons of coal produced per month and TC incleds a normal rate of return on investment.;A> Calculate Montana's profit at the profit-maximizing activity level if prices in the industry are stable at $20 per ton, and therefore P=MR+$20;B Calculate Montana's optimal price, output, and profit levels if a new state regulation results in a $5 per ton cost increase that can be fully passed onto customers;C. Determine the effects on output and profit if Montana is only able to pass onto consumers only $! of the projected cost increase. and muyst absorb the remaing $4 per ton cost increase.

 

Paper#21614 | Written in 18-Jul-2015

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