Question and Answer - 26

there and the product is displayed in the right way.
Others maintain that channel imagesâ€”such

as a retail storeâ€”can be cri
What are some sources of conflict the project manager must deal with?
Would the life cycle for this project be S-shaped or the right half of a U or something else? How
about the life cycle for a freeway construction project?
See Full Question And Answer at solutionrank.com
Will the Kindle revolutionize the book industry? Why or why not?
Explain why Mayo Clinic is so good at customer service. Why has it been so successful
practicing medicine differently from other hospitals?
A few of the guidelines are related to the need to understand the reason for the project in the first
place. Which guidelines would you place in this category? Why is this so crucial?
What were some of the key steps that led to Caterpillarâ€™s becoming the industry leader in
earthmoving machinery?
Why has Amazon.com succeeded online when so many other companies have failed?
How might project management be used when doing a major schoolwork assignment?
Differentiate between direct and ancillary project goals. Would learning a new skill through the
project be a direct or ancillary goal? Entering a new market?
Maladroit Cosmetics Company The plant manager of the Maladroit Cosmetics Company must
replace several of her filling machines that have become obsolete. She is about to take delivery
of six machines at a total cost of $4 million. These machines must be installed and fully tested in
time to be used on a new production l
McDonaldâ€™s did very well during the recession in the late 2000s. With the economy turning
around for the better, should McDonaldâ€™s change its strategy? Why or why not?
Name and briefly describe the three primary goals of a project.
Starbucks has worked hard to act ethically and responsibly. Has it done a good job
communicating its efforts to consumers? Do consumers believe Starbucks is a responsible
company? Why or why not?
Whom Should You Target with New Products? Some new-products experts maintain that getting
close to customers through intensive research is the only way to develop successful new
products. Other experts disagree and maintain that customers canâ€™t possibly provide useful
feedback on what they donâ€™t know and canâ€™t pr
Which of the identified project attributes in Section 1.1 are always present? Which are simply
frequently present?
Knowing that the smart phone market is likely to remain highly competitive, Jane Melody wants
you to look ahead at how Sonic can develop new products outside the smart phone market.
Review the competitive situation and the market situation before you continue working on the
Sonic marketing plan. â€¢ List three new-prod
List the seven main characteristics of a project and briefly describe the important features of
each.
How does the rate-of-project-progress chart (Fig. 1-3) help a manager make decisions?
Would you like to be a project manager? Why, or why not?
Did Toyota grow too quickly as Toyoda suggested? What should the company do over the next
year, 5 years, and 10 years? How can growing companies avoid quality problems in the future?
Are Brand Extensions Good or Bad? Some critics vigorously denounce the practice of brand
extensions, because they feel that too often companies lose focus and consumers become
confused. Other experts maintain that brand extensions are a critical growth strategy and source
of revenue for the firm. Take a position: Brand
As Jane Melodyâ€™s assistant, youâ€™re researching how to market the Sonic 1000 smart
phone product outside the United States within a year. Youâ€™ve been asked to answer the
following questions about Sonicâ€™s use of global marketing. â€¢ As a start-up company,
should Sonic use indirect or direct exporting, licensing,
What are some of the interdependencies related to a project?
Expound on the adage, â€œProjects proceed smoothly until 90 percent complete, and then
remain at 90 percent forever.â€
Constellation Telecommunications Ltd manufactures two different fax machines for the business
market cost estimates for the two models for the current year are as follows: Each model of fax
machine requires 20 hours of direct labour. The basic system requires 5 hours in Department A
and 15 hours in Department B. The a
Describe the common indicators of an outdated product costing system?
What factors should be considered when deciding how many cost pools to use in activity-based
costing?
Explain the differences between manufacturing overhead, upstream and downstream costs, and
the indirect costs of responsibility centres.
Whatâ€™s next for Apple? Should it continue to move away from computers and toward more
new handheld devices?
Spicer and Rabbit is an accounting firm that specialises in fraud investigation. In May, Jackson
McInnes, the general manager of Jazz Industries, approached John house, a partner of Spicer and
Rabbit, to discuss a problem that has arisen in one of his warehouses. McInnes is not sure
whether fraud is involved or not, bu
Greenlife is a health resort that offers a range of programs for health-conscious managers.
Managers who participate are provided with a tailored program, consisting of a series of
activities. A job costing system s used to calculate the cost of each program. The manager of
Greenlife has designed the following programs
What is your appraisal of Netflix's operating and financial performance based on the data in case
Exhibits 2, 3, 6, and 7? What positives and negatives do you see in Netflix's performance? Use
the financial ratios in Table 4.1 of Chapter 4 as a guide in doing the calculations needed to arrive
at an analysis-based answe
All Texts and Stationery Ltd (ATS) is a major provider of texts and stationery to secondary
schools throughout South Australia. Students submit their order to MS through their school at the
beginning Â°f the year. All Texts and Stationery fills the order in three stages: (a) An order is
received from the school and en
What is Netflix's strategy? Which of the five generic competitive strategies discussed in Chapter
5 most closely fit the competitive approach that Netflix is taking? What type of competitive
advantage is Netflix trying to achieve?
Process costing: university enrolments Flagstaff University is exploring the possibility of

outsourcing part or all of its enrolment function. This function involves three separate processes:
(a) Validation, where the new student's secondary school results are sighted and the university's
offer of enrolment is validat
Refer to the information for Exercise 6.27. 1. Calculate the fee charged to redecorate the council
offices, assuming that the firm uses a chargeout rate of $360 per professional labour hour (which
includes a profit margin of 40 per cent) and 120 hours are worked on this contract. Materials are
charged to the client at
Porter Ltd began operation on 1 January, and achieved the following results for the year:
Sales ................................................. 36 000 units Selling price .......................................... $45
per unit Manufacturing costs: Direct material ....................................... $12 per u
Refer to the data given in problem 7.34. The company has implemented an activity-based costing
system for its manufacturing overhead costs with the activity cost pools and activity diver data
below: Constellation plans to produce 1000 units of each model of fax machine. Required: 1. For
each activity, calculate the
Refer to the 'Real life' and evaluate the PVA's decision to allocate overhead costs to self-funded
projects based on salary costs.
Describe the service costing system that is most appropriate for: (a) Professional service firms.
(b) Service shops. (c) Mass service entities.
Normal costing: alternative denominator volumes: engineering firm Thomas Pty Ltd is a defense
engineering business. Contracts are costed using a normal job costing system, with a plantwide
overhead rate based on practical capacity. I.M. Rite, the firm's accountant, has recommended a
switch from practical capacity to th
Blusteel Ltd manufactures Blu-ray players and uses an activity-based product costing system that
assigns labour and overhead costs. Below is an incomplete bill of activities for the high-volume
product, BluStandard. Bluesteel Ltd Bill of activities BluStandard Activity _____________ Cost
per unit of activity driver
Describe the limitations of activity-based costing?
What are the strategically relevant components of Equal Exchange's macro-environment? Are
socio-cultural, environmental, economic, and other components of the macro-environment
favorable to the sellers of fair trade food and beverage products? Does the industry offer
attractive opportunities for growth?
Explain the competitive pressures facing the fair trade food and beverage products industry.
What does a five-forces analysis reveal about the nature and strength of the competitive
pressures facing Equal Exchange? Which of the five forces is the strongest? Which of the five
forces is weakest?
Stylish Manchester Ltd has used a traditional cost accounting system to apply quality control
costs uniformly to all products at a rate of 16 per cent of direct labor cost. Monthly direct labor
cost for the Satin Sheet range is $147 000. In an attempt to distribute quality control costs more
equitably control costs for
Southwoods is a medium-sized accounting firm that provides services in the areas of audit,
taxation and investment advice. Apply value chain and other classifications to the costs listed
below. (More than one classification may be appropriate for each cost item.) What role might
this approach to cost classification pla
Define the term cost allocation base. Can you think of a suitable cost allocation base for
assigning advertising costs to the various attractions at a large theme park (such as Disneyland or
Movie-world on the Gold Coast)?
Puresound Ltd manufactures MP3 players in its Brishbane plant. The following costs are
budgeted for March. _____________________________________________________ $4, 425
000 Raw materials and components ........................................... 900 000 Insurance,
plant ..............................................
Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and
corporate groups. The financial controller. Jack Tallis, is preparing for the annual board meeting
and is concerned about the loss that the business sustained in the past year. He has examined the
profits for each of the three d
Would you recommend variable costing or absorption costing as a source of information for
managers? Explain your answer.
What are Equal Exchange's competitively important resources and capabilities? Which of its
resources have the greatest competitive power? Are any of its resources and capabilities able to
pass all four VRIN tests for sustainable competitive advantage? Explain.
Friendly Skies Ltd operates the check-in facilities at domestic and international terminals
throughout Australia. During the month of May the following costs were incurred as passengers
were processed by the Check-in Department at Brisbane Airport: Required: 1. Calculate the cost
per check-in at the international an
Kevin Ltd is developing departmental overhead rates based on machine hours for its Moulding
Department and direct labour hours for its Assembly Department. The Moulding Department has
20 machines, each of which runs 2000 hours per year. The Assembly Department employs 80
people. Each person in the Assembly Department w
What does a SWOT analysis of Netflix reveal about the overall attractiveness of its situation?
Why do management accountants allocate indirect costs to responsibility centres? Refer to the
'Real life' on page 289. What problems were encountered in allocating Prime Infrastructure costs
to Dalrymple Bay Coal Terminal (DBCT) and what effect did this have on DBCT's cost per
loaded tonne?
What does your strategic group map of this industry look like? Is Netflix well-positioned? Why
or why not?
Peninsula Manufacturing has just completed a major change in its quality control (QC) process.
Previously, products were reviewed by QC inspectors at the end of each major process, and the
company's 10 QC inspectors were charged as direct labour to the operation or job. In an effort to
improve efficiency and quality, a
Overhead application using a predetermined overhead rate; practical capacity versus normal
volume: manufacturer Jane Statton, the accountant for Hobart Happy Critters Ltd is in the
process of analysing the company's overhead costs for November. She has gathered the
following data for the month: â€¢ Labour: â€¢ Invent
What is a value chain? Select any major service organisation with which you are familiar and
describe the segments that you think would be included in its value chain. Provide a brief
explanation of the role of each segment.
Your local accounting firm is a service entity. Give two examples each of the accounting firm's
direct and indirect costs, specifying the cost object. How might the accounting firm's
management use this information?
What are the major differences between a contribution margin statement and an absorption
costing income statement?
Fantastique fashions Ltd has switched from a traditional product costing system to an activity
based product costing system to assign manufacturing overhead costs to products. The table
below show cost per unit for two products under the two costing systems: Costing system
_________________ Product A _____________ Pr
In estimating the costs of products, manufacturers usually identify direct material, direct labour
and manufacturing overhead costs. What modifications may be made to these classifications in
estimating service costs?
Predetermined plantwide overhead rate; alternative cost drivers Repeat the requirements for
Exercise 7.22, assuming that Facsimile uses the following as overhead cost drivers: (a) Direct
labour hours. (b) Direct labour dollars. In hindsight, which cost driver seems to be the most
appropriate: machine hours, direct l
Silver water Ltd manufactures sophisticated six-tuner personal video recorders and has decided
to develop an activity-based product costing system to assign labour and overhead costs to
products. The table below lists Silver-water's costs during the current year and the resource
drivers to be used to assign these costs
Perfect Image Ltd produces two types of computer printers, a laser model and an inkjet model,
which pass through two production departments. Fabrication and Assembly. The following data
relate to the year just ended: Actual overhead costs for the year were $450,000. Required: 1.
Calculate the predetermined plantwid
The accountant for Snappy photographic Supply Ltd has estimated the following activity cost
pools and activity drivers for the coming year: An order for 1000 boxes of film development
chemicals has the following production requirement: Machine setups .................................. 4
setups Raw material ........
What do we mean by the denominator volume? Describe the effect on product cost of changing
from a denominator volume based on practical capacity to one based on theoretical capacity.
Refer to the description of Wheelco Ltd in Exercise 8.21 Wheelco Pty Ltd manufactures car and
truck wheels. The company produces four basic, high-volume wheels used by manufactures of
large cars and trucks. Wheelco also has two specialty wheel lines. These are fancy, complicated
wheels used in expensive sports cars.
Hobart Machines Ltd (HML) manufactures two products Standard and Enhanced, and applies
overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the
upcoming accounting period are $800 000 and 25 000 hours, respectively. Information about the
company's products follows: Standard: __
Bairstow Consulting Ltd offers a range of IT consulting services. The company's service costing
system estimates the cost of each consulting job by accumulating costs of the professional labour
that works or the job plus a charge for overhead. The cost of professional labour is charged to
jobs using the following three
The Real life explains how activities were identified in the NSW public sector, Describe some of
the difficulties that might arise in estimating the cost of these activities?
Brain Jones, the manager of Walkabout tours, uses activity-based costing to calculate the cost of
the company's adventure walking trips. The company offers two basic trips: a two-day walk
along the EI Questro Gorge and a five-day trip to the Filnders Rangers. The activities and costs
relevant to the walking trips are a
Do you think Jim Sinegal is an effective CEO? What grades would you give him in leading the
process of crafting and executing Costco's strategy? What support can you offer for these grades?
Refer to Figure 2.1 in Chapter 2 in developing your answers.
Partmate Pty Ltd is a retail business that sells car parts to customers who maintain their own cars.
The company began business on t January and the acquisition of the inventory of car parts during
the year involved the following amounts: The purchase price of the
merchandise..........................................
Acacia Patins Ltd manufacturers paint and uses an activity-based product costing system. The
table overleaf lists the labour and overhead costs of the Mixing Centre for the current year, and
their resource drivers. Required: 1. Complete the following table to calculate the cost of the
activity 'Load mixer' for the cu
The Stately Retail Group owns the EzyShop chain of discount department stores. The EzyShop
store in Bondi Junction consists of several departments. The revenues and costs for each
department are recorded separately, and department managers are held responsible for these
results. Frieda Schmidt manages the Menswear Depa
In estimating the cost of a cost object, how are direct costs and indirect costs assigned to the cost
object? Using the NGOs involved in the tsunami relief efforts choose a cost object and give two
examples of direct and indirect costs for that cost object.
Secure Bank has two support departments: the Human Resources Department and the Computing
Department. The bank also has two departments that service customers directly: the Deposits
Department and the Loans Department. The usage of the two support departments' output in the
year just ended was as follows: The budgeted
What are the key elements of Equal Exchange's strategy? Which of the five generic strategies is
the company pursuing? How has the cooperative integrated corporate social responsibility into
its business strategy?
Using an example, explain how a retailer could focus on the purchasing segment of their value
chain to create competitive advantage.
Explain the term reciprocal services and give examples of the reciprocal services offered by
support departments in a university.
What are the implications of spare capacity when activity-based costing is used to report on the
profitability of a firm?
What recommendations would you make to Netflix CEO Reed Hastings? At a minimum, your
recommendations should cover what to do about each of the top priority issues identified in
question 9.
Health-aware is a large medical practice in Sydney owned by Dr Palmer, a medical entrepreneur,

and staffed by salaried doctors. Until recently the practice had been managed by Palmer's son,
Jason. However, Dr Palmer became concerned about his son's financial management and
appointed a qualified accountant. Graham Cooke
How does Netflix's competitive strength compare against that of Blockbuster and Amazon? Do a
weighted competitive strength assessment using the methodology presented in Table 4.4 of
Chapter 4 to support your answer. Does Netflix have a sustainable competitive advantage over
either or both of these two rivals in the mov
Quality Pool Accessory Ltd manufactures a variety of accessory equipment for swimming pools.
For many years the company has used a traditional product costing system with direct labour
hours as the only cost driver for overhead application. The firm is organised into five
departments, listed below with the key activiti
Libraries are service organisations. Think of an example of a fixed cost and a variable cost for a
library and specify the cost driver for the variable cost. How might the library's management use
this information?
Classify the following organisations as professional service firms, mass service entities or
service shops. In each case, explain the reasons for your classification. 1. Motor registration
department that processes applications and payments for drivers licenses and vehicle registration.
2. Medical practice staffed b
Refer to the data given in Problem 7.39 for Kevin Ltd. Kevin Ltd is developing departmental
overhead rates based on machine hours for its Moulding Department and direct labour hours for
its Assembly Department. The Moulding Department has 20 machines, each of which runs 2000
hours per year. The Assembly Department emp
The following annual data relate to Facsimile Printing Pty Ltd: Budgeted machine
hours............................15,000 Budgeted direct labour hours.......................30,000 Budgeted direct
labour cost.....................$420 000 Budgeted manufacturing overhead.............$546,000 During
the month of June
Star Electronics Ltd calculates its predetermined overhead rate on a quarterly basis. The
following estimates were made for next year: The firm main product, part number A200, requires
$200 of direct material and 20 hours of direct labour per unit. The labour rate is $30 per hour.
Required: 1. Construct an Excel' sp
Sleepsound Pty Ltd's planned production for the current year was 15,000 units. This production
was achieved, but only 13,500 units were sold at $60 each. Other data are as follows: Direct
materials used......................................................$120,000 Direct labour cost
incurred.........................
Southern Districts is a private hospital in Wangaratta, Victoria. The hospital is a not-for-profit

organisation, and currently bills its patients at $375 per day. This rate was set at the beginning of
the year to cover the costs of running the hospital, based on the expected level of activity. The
costs at this activit
ChalkTalk Ltd manufactures blackboard chalk for educational uses. The company's product is
sold by the bog at 550 per unit. ChalkTalk uses an actual costing system, which means that the
actual costs of direct material, direct labour and manufacturing overhead are entered into work in
process inventory. The actual appli
Identify the key features of: (a) Professional service firms. (b) Service shops. (c) Mass service
entities. Give three examples of each of these types of service organisations.
What are cost objects, cost pools and allocation bases? What role do they play in cost allocation?
What is the difference between cost allocation bases and cost drivers?
What is the key difference between variable and absorption costing?
Explain the costs and benefits that need to be considered when choosing between the use of
predetermined or actual overhead rates.
'Actual support department costs should be allocated rather than budgeted, as these are more
accurate.' Do you agree? Explain your answer.
Explain the three different ways in which the term cost driver is used in activity-based costing
and give two examples of each type of cost driver for a bank. (First think about the activities
performed in a bank and then think about their cost drivers.)
Feeling Fab Ltd produces frozen yoghurt. a low-fat dairy dessert. The product is sold in five-litre
containers and had the following price and variable costs per unit for the current year which
ended on 30 June: Sales price...............................$15.00 Direct material.............................5.00
Direct
Mel Snow is the manager of a firm, Taxation Matters, which specializes in the preparation of
income tax returns. The firm offers two basic products: the preparation of income tax returns for
wage and salary earners and the preparation of income tax returns for small businesses. Any
clients requiring more complex servic
What causes traditional product costing systems to report lower product costs than those reported
by activity-based costing systems for low-volume, small-batch, speciality product lines?
Eye in the Sky Lens Company manufactures sophisticated lenses and mirrors used in large
optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of
the profitability of individual products, the management accountant estimates the amount of
overhead that should be allocated to the
Rising Past Pty Ltd manufactures a complete line of fibreglass attachÃ© cases and suitcases. The
firm has three manufacturing departments: Moulding, Component and Assembly. There are also
two support departments: Power and Maintenance. The sides of the cases are manufactured in
the Moulding Department. The frames, hing
Country Leatherworks, which manufactures saddles and other leather goods, has three
departments. The Assembly Department manufactures various leather products, such as belts,
purses and saddlebags, using an automated production process. The Saddle Department produces
handmade saddles and uses very little machinery. The
Refer to the information provided in Exercise 8.25. For each of the activities identified, indicate
whether it represents a unit-level, batch-level, product-level, or facility-level activity? Explain
your choice. Refer to Exercise 8.25: Puresound Ltd manufactures MP3 players in its Brishbane
plant. The following cost
What factors may impede the introductions of ABC?
Describe the two dimensions of the activity-based costing model shown in Exhibit 83. Using the
terms resources, activity and resource driver, explain how costs are assigned to activities?
Wheelco Pty Ltd manufactures car and truck wheels. The company produces four basic, high-
volume wheels used by manufactures of large cars and trucks. Wheelco also has two specialty
wheel lines. These are fancy, complicated wheels used in expensive sports cars. Lately,
Wheelco's profits have been declining. Foreign com
What key factors will determine a company's success in the movie rental industry in the next 3-5
years?
Classifying costs; value chain: bank Consider a major bank. Classify the costs listed below using
the following value chain classifications: (a) Research and development. (b) Design. (c)
Production/delivery. (d) Marketing. (e) Customer support. Costs: 1. Salaries of the tellers who
process deposits and withdraw
Wallaby Gully Wines is a small, family-run operation in the Yarra Valley. The winery produces
two varieties of wine: Riesling and Chardonnay. Among the winery's activities are the
Following: 1. Pruning: At the end of a growing season, the vines are pruned, which helps prepare
them for the next harvest. 2. Tying: The
The success (or Failure) of activity-based costing is determined by the reactions of the people
who develop and use the system? Discuss.
Explain the difference between activity-based costing for manufacturing overhead and a
traditional costing system that uses departmental overhead rates.
What 3-4 top priority issues does Netflix management need to address?
Predetermined overhead rates for various cost drivers: manufacturer The following data relate to
Denyer Ltd for the year just ended. Budgeted sales revenue......................................$307,500
Actual manufacturing overhead............................$510,000 Budgeted machine
hours..........................
Brown and Whincup perform consulting services related to e-commerce and information systems
in Adelaide. The firm, which bills $187.50 per hour for services performed, is in a very tight
local labour market and is having difficulty finding quality staff. The labour cost per hour paid
by Brown and Whincup for profession
Describe some costs and benefits of using (a) departmental overhead rates and (b) activity-based
costing, for product costing.
Pabbings is a national retailer of hardware and garden products. The merchandise in each store is
organised into separate departments such as timber, electrical tools, lighting and garden products.
Each department has a manager, responsible for ordering and managing enquiries about
merchandise in their area. Staff in t
Noteperfect Ltd manufactures sheet music stands in two separate departments: Cutting and
welding: One of Noteperfect's major products, the A Frame, has the following production
requirements: Required: 1. Calculate the manufacturing overhead cost of the A Frame using: (a)
A predetermined plantwide rate based on dire
Describe the circumstances in which the benefits from ABC will be greatest. Using the 'Real life'
provide some examples of the benefits activity-based costing in the public sector?
Eye for Detail is an interior decorating firm located in Sydney. The following costs were
incurred in the firm's contract to redecorate the local council offices: Direct
material.........................................$5600 Professional labour...................................12,000 The
firm's budget for the year
Visit the website of Fox Studios Australia (www.foxstudiosaustralia.comn and read about recent
film releases (by clicking on Studio Overview and 'View our credits). Using examples of these
films, discuss whether job costing would be an appropriate costing method for feature film
production. Would your answer vary if th
Pristine Ltd manufactures two types of storage cabinets-Deluxe and Executive-and applies
manufacturing overhead to all units at the rate of $120 per machine hour. Production information
follows. _______________________________ Deluxe ______________ Executive Direct
material cost ....................... $52.50 .......
Why might organizations choose the implement a one-off ABC project rather than an ongoing
system?
Traditional costing systems apply manufacturing overhead costs to products using a volume-
based cost driver such as direct labour hours. What do we mean by the term volume-based cost
driver? What problems can arise with this approach to product costing in a modern
manufacturing environment?
The reciprocal method is the most appropriate method of support department cost allocation as it
takes into account all service flows between departments.' Do you agree? Explain your answer.
Distinguish between a support department and a production department. Give an example of a

production department in a bank, and a support department in a restaurant chain.
Classifying costs: value chain: retailer Walworths is a major independent supermarket located in
West Wyalong. Classify the costs listed below. using these value chain classifications: (a)
Purchasing. (b) Production/sales. (c) Marketing. (d) Distribution. (e) Customer support. Costs: 1.
Wages paid to the purchasi
In this chapter, the Income Statement of Adelaide Bank (Exhibit 6.13) is typical of many service
firms, in that Operating Profit (consisting of the difference between operating revenue and
operating expenses) is separated from other (non-operating) items. However, the Income
Statement of a retailer (Exhibit 6.14) more
Jackson Instrument Company manufactures gauges for the construction industry. The company
has two production departments: Machining and Finishing. There are also three support
departments: Human Resources (HR), Maintenance and Design. The budgeted overhead costs
for the year for each department are as follows: HR.....
Refer to the data given in Exercise 7.27. The budgeted costs in the two support departments for
the year just ended were: Human Resources......................................$720,000
Computing.............................................1,200,000 Required: Use the reciprocal services method
to allocate the budget
Job costing: consulting firm WA Consulting Services Pty Ltd (WACS) provides consulting
services throughout Western Austral and uses a job costing system to accumulate the cost of
client projects. Traceable costs are charged directly to individual clients; in contrast, other costs
incurred by WACS, but not identifiable
Refer to the data given in Exercise 7.27. The budgeted costs in the two support departments for
the year just ended were: Human Resources......................................$720,000
Computing.............................................1,200,000 Required: Use the step-down method to
allocate the budgeted costs o
MJA Engineers is a firm of consulting engineers. The business provides two main services:
design and support services for civil engineering projects, such as the building of bridges and
roads, and environmental assessments for planned and existing developments. MJA is preparing
a tender for a project involving the exte
Given the conversion of several European currencies to the euro, explain what would cause the
euroâ€™s value to change against the dollar according to the IFE.
The South African rand has a one-year forward premium of 2 percent. One-year interest rates in
the United States are 3 percentage points higher than in South Africa. Based on this information,
is covered interest arbitrage possible for a U.S. investor if interest rate parity holds?
If I can buy a car today for $5,000 and it is worth $10,000 in extra income next year to me
because it enables me to get a job as a traveling anvil seller, should I take out a loan from Larry
the Loan Shark at a 90% interest rate if no one else will give me a loan? Will I be better or worse
off as a result of taking ou
The interest rate in Indonesia is commonly higher than the interest rate in the United States,
which reflects a high expected rate of inflation there. Why should Nike consider hedging its
future remittances from Indonesia to the U.S. parent even when the forward discount on the
currency (rupiah) is so large?
Looking at Figure in which years would your have chosen to visit the Grand Canyon in Arizona
rather than the Tower of London?
Assume that locational arbitrage ensures that spot exchange rates are properly aligned. Also
assume that you believe in purchasing power parity. The spot rate of the British pound is $1.80.
The spot rate of the Swiss franc is 0.3 pounds. You expect that the one-year inflation rate is 7
percent in the United Kingdom, 5
As an employee of the foreign exchange department for a large company, you have been given
the following information: Beginning of Year Spot rate of Â£ = $1.596 Spot rate of Australian
dollar (A$) = $.70 Cross exchange rate: Â£1 = A$2.28 One-year forward rate of A$ = $.71 One-
year forward rate of Â£ = $1.58004 One-year
Regents Corporation is a recently acquired U.S. manufacturing subsidiary located on the

outskirts of London. Its products are marketed principally in the United Kingdom with sales
invoiced in pounds and prices determined by local competitive conditions. Expenses (labor,
materials, and other production costs) are mostly
The Argentine one-year CD (deposit) rate is 13 percent, while the Mexico one-year CD rate is 11
percent and the U.S. one-year CD rate is 6 percent. All CDs have zero default risk. Interest rate
parity holds, and you believe that the international Fisher effect holds. Jamie (based in the United
States) invests in a
Before the Asian crisis began, Asian central banks were maintaining a somewhat stable value for
their respective currencies. Nevertheless, the forward rate of Southeast Asian currencies
exhibited a discount. Explain.
What lessons, if any, can be learned from examining the history of foreign currency translation
in the United States?
One assumption made in developing the IFE is that all investors in all countries have the same
real interest rate. What does this mean?
When interest rates fall, how might you change your economic behavior?
What effect might a fall in stock prices have on business investment?
On April 1, A. C. Corporation, a calendar-year U.S. electronics manufacturer, buys 32.5 million

yen worth of computer chips from the Hidachi Company paying 10 percent down, the balance to
be paid in 3 months. Interest at 8 percent per annum is payable on the unpaid foreign currency
balance. The U.S. dollar/ Japanese ye
On January 1, the wholly-owned Mexican affiliate of a Canadian parent company acquired an

inventory of computer hard drives for its assembly operation. The cost incurred was 15,000,000
pesos when the exchange rate was MXN11.3 = C$1. By yearend, the Mexican affiliate had used
three-fourths of the acquired hard drives. D
How does a fall in the value of the pound sterling affect British consumers?
What do current, historical, and average exchange rates mean in the context of foreign currency
translation? Which of these rates give rise to translation gains and losses? Which do not?
The one-year interest rate in Singapore is 11 percent. The one-year interest rate in the United
States is 6 percent. The spot rate of the Singapore dollar (S$) is $.50 and the forward rate of the
S$ is $.46. Assume zero transaction costs. a. Does interest rate parity exist? b. Can a U.S. firm
benefit from investing fu
A 100 percentâ€“owned foreign subsidiaryâ€™s trial balance consists of the accounts listed as
follows. Which exchange rateâ€”current, historical, or averageâ€”would be used to translate
these accounts to parent currency assuming that the foreign currency is the functional currency?
Which rates would be used if the pare
If investors in the United States and Canada require the same real interest rate, and the nominal
rate of interest is 2 percent higher in Canada, what does this imply about expectations of U.S.
inflation and Canadian inflation? What do these inflationary expectations suggest about future
exchange rates?
As of today, assume the following information is available: a. Use the forward rate to forecast
the percentage change in the Mexican peso over the next year. b. Use the differential in expected
inflation to forecast the percentage change in the Mexican peso over the next year. c. Use the
spot rate to forecast the pe
Compare and contrast features of the major foreign currency translation methods introduced in
this chapter. Which method do you think is best? Why?
Explain the rationale of the PPP theory.
What effect might a rise in stock prices have on consumersâ€™ decisions to spend?
Compare and contrast interest rate parity (discussed in the previous chapter), purchasing power
parity (PPP), and the international Fisher effect (IFE).
Explain how you could determine whether PPP exists. Describe a limitation in testing whether
PPP holds.
Shanghai Corporation, the Chinese affiliate of a U.S. manufacturer, has the balance sheet shown
below. The current exchange rate is $.0.15 = CNY1. Required: a. Translate the Chinese dollar
balance sheet of Shanghai Corporation into U.S. dollars at the current exchange rate of $.0.15 12
= CNY1. All monetary accounts
Assume that the 30-day forward premium of the euro is -1 percent, while the 90-day forward
premium of the euro is 2 percent. Explain the likely interest rate conditions that would cause
these premiums. Does this ensure that covered interest arbitrage is worthwhile?
Assume that your Japanese affiliate reports sales revenue of 250,000,000 yen. Referring to
Exhibit 6-1, translate this revenue figure to U.S. dollars using the direct bid spot rate. Do the
same using the indirect spot quote.
Shouldnâ€™t the IFE discourage investors from attempting to capitalize on higher foreign
interest rates? Why do some investors continue to invest overseas, even when they have no other
transactions overseas?
1. Do you think Jim will be able to find a bank that provides him with a more favorable spot rate
than his local bank? Explain. 2. Do you think that Jimâ€™s bank is likely to provide more
reasonable quotations for the spot rate of the British pound if it is the only bank in town that
provides foreign exchange services?
Assume that interest rate parity holds. At the beginning of the month, the spot rate of the
Canadian dollar is $.70, while the one-year forward rate is $.68. Assume that U.S. interest rates
increase steadily over the month. At the end of the month, the one-year forward rate is higher
than it was at the beginning of the
Assume that at the beginning of the year, the poundâ€™s value is in equilibrium. Assume that
over the year the British inflation rate is 6 percent, while the U.S. inflation rate is 4 percent.
Assume that any change in the poundâ€™s value due to the inflation differential has occurred by
the end of the year. Using this
Assume that the one-year U.S. interest rate is 11 percent, while the one-year interest rate in
Malaysia is 40 percent. Assume that a U.S. bank is willing to purchase the currency of that
country from you one year from now at a discount of 13 percent. Would covered interest
arbitrage be worth considering? Is there any r
Assume that Mexicoâ€™s economy has expanded significantly, causing a high demand for
loanable funds there by local firms. How might these conditions affect the forward discount of
the Mexican peso?
Assume that the inflation rates of the countries that use the euro are very low, while other
European countries that have their own currencies experience high inflation. Explain how and
why the euroâ€™s value could be expected to change against these currencies according to the
PPP theory.
Todayâ€™s spot rate of the Mexican peso is $.10. Assume that purchasing power parity holds.
The U.S. inflation rate over this year is expected to be 7 percent, while the Mexican inflation
over this year is expected to be 3 percent. Wake Forest Co. plans to import from Mexico and will
need 20 million Mexican pesos in on
Some economists suspect that one of the reasons that economies in developing countries grow so
slowly is that they do not have well-developed financial markets. Does this argument make
sense?
Assume that Mexico has a one-year interest rate that is higher than the U.S. one-year interest
rate. Assume that you believe in the international Fisher effect (IFE) and interest rate parity.
Assume zero transaction costs. Ed is based in the United States and attempts to speculate by
purchasing Mexican pesos today, inv
The United States and the country of Rueland have the same real interest rate of 3 percent. The
expected inflation over the next year is 6 percent in the United States versus 21 percent in
Rueland. Interest rate parity exists. The one-year currency futures contract on Ruelandâ€™s
currency (called the ru) is priced at $
A foreign currency transaction can be denominated in one currency, yet measured in another.
Explain the difference between these two terms using the case of a Canadian dollar borrowing on
the part of a Mexican affiliate of a U.S. parent company that designates the U.S. dollar as the
functional currency.
How does the treatment of translation gains and losses differ between the current and temporal
translation methods under FAS No.52, and what is the rationale for the differing accounting
treatments?
Under what set of conditions would the temporal method of currency translation be appropriate.
Under what set of conditions would the current rate method be appropriate?
Explain the international Fisher effect (IFE). What is the rationale for the existence of the IFE?
What are the implications of the IFE for firms with excess cash that consistently invest in foreign
Treasury bills? Explain why the IFE may not hold.
1. Is Jimâ€™s interpretation of the IFE theory correct? 2. If you were in Jimâ€™s position,
would you spend time trying to decide whether to hedge the receivables each month, or do you
believe that the results would be the same (on average) whether you hedged or not? MINI CASE
Every month, the Sports E
Because corporations do not actually raise any funds in secondary markets, they are less
important to the economy than primary market. Comment.
The opening of Russiaâ€™s market has resulted in a highly volatile Russian currency (the ruble).
Russiaâ€™s inflation has commonly exceeded 20 percent per month. Russian interest rates
commonly exceed 150 percent, but this is sometimes less than the annual inflation rate in Russia.
a. Explain why the high Russian infla
Assume that annual interest rates in the United States are 4 percent, while interest rates in France
are 6 percent. a. According to IRP, what should the forward rate premium or discount of the euro
be? b. If the euroâ€™s spot rate is $1.10, what should the one-year forward rate of the euro be?
The one-year risk-free interest rate in Mexico is 10 percent. The one-year risk-free rate in the
United States is 2 percent. Assume that interest rate parity exists. The spot rate of the Mexican
peso is $.14. a. What is the forward rate premium? b. What is the one-year forward rate of the
peso? c. Based on the internat
1. What is the relationship between the exchange rates and relative inflation levels of the two
countries? How will this relationship affect Bladesâ€™ Thai revenue and costs given that the
baht is freely floating? What is the net effect of this relationship on Blades? 2. What are some of
the factors that prevent PPP fr
Japan has typically had lower inflation than the United States. How would one expect this to
affect the Japanese yenâ€™s value? Why does this expected relationship not always occur?
What are financial markets important to the health of the economy?
Beth Miller does not believe that the international Fisher effect (IFE) holds. Current one-year
interest rates in Europe are 5 percent, while one year interest rates in the United States are 3
percent. Beth converts $100,000 to euros and invests them in Germany. One year later, she
converts the euros back to dollars. T
Inflation differentials between the United States and other industrialized countries have typically
been a few percentage points in any given year. Yet, in many years annual exchange rates
between the corresponding currencies have changed by 10 percent or more. What does this
information suggest about PPP?
What is the difference between the spot, forward, and swap markets? Illustrate each description
with an example.
Use the information provided in Exercise 6. Required: a. What would be the translation effect if
Shanghai Corporationâ€™s balance sheet were translated by the temporal method assuming the
Chinese yuan appreciates by 25 percent? By the current rate method? b. If the Chinese yuan
depreciates by 25 percent, what would be
Explain the theory of purchasing power parity (PPP). Based on this theory, what is a general
forecast of the values of currencies in countries with high inflation?
Assume that the nominal interest rate in Mexico is 48 percent and the interest rate in the United
States is 8 percent for one-year securities that are free from default risk. What does the IFE
suggest about the differential in expected inflation in these two countries? Using this information
and the PPP theory, describ
How does an increase in the value of the pound sterling affect American businesses?
When the dollar is worth more in relation to currencies of other countries, are you more likely to
buy American-made or foreign-made jeans? Are U.S companies that manufacture jeans happier
when the dollar is strong or when it is weak? What about an American company that is in the
business of importing jeans into the Un
Before the Asian crisis, many investors attempted to capitalize on the high interest rates
prevailing in the Southeast Asian countries although the level of interest rates primarily reflected
expectations of inflation. Explain why investors behaved in this manner. Why does the IFE
suggest that the Southeast Asian count
What is the basic activity of banks?
On December 15, MSC Corporation acquires its first foreign affiliate by acquiring 100 percent of
the net assets of the Armaselah Oil Company based in Saudi Arabia for 930,000,000 Saudi
Arabian riyals.(SAR). At the time, the exchange rate was $1.00 = SAR3.750. The acquisition
price is traceable to the following identifi
U.S. Multinational Corporationâ€™s subsidiary in Bangkok has on its books fixed assets valued
at 7,500,000 baht. One-third of the assets were acquired two years ago when the exchange rate
was THB40 = $1. The other fixed assets were acquired last year when the exchange rate was
THB38 = $1. Each layer of fixed assets is
If history repeats itself and we see a decline in the rate of money growth, what might you expect
to happen to? a. Real output? b. The inflation rate? c. Interest rates?
Currencies of some Latin American countries, such as Brazil and Venezuela, frequently weaken
against most other currencies. What concept in this chapter explains this occurrence? Why
donâ€™t all U.S.-based MNCs use forward contracts to hedge their future remittances of funds
from Latin American countries to the United
Describe a method for testing whether interest rate parity exists. Why are transaction costs,
currency restrictions, and differential tax laws important when evaluating whether covered
interest arbitrage can be beneficial?
Assume that the inflation rate in Brazil is expected to increase substantially. How will this affect
Brazilâ€™s nominal interest rates and the value of its currency (called the real)? If the IFE holds,
how will the nominal return to U.S. investors who invest in Brazil be affected by the higher
inflation in Brazil? Expl
The U.S. 3-month interest rate (unannualized) is 1 percent. The Canadian 3-month interest rate
(unannualized) is 4 percent. Interest rate parity exists. The expected inflation over this period is 5
percent in the United States and 2 percent in Canada. A call option with a 3-month expiration
date on Canadian dollars is
Based on the information in question 1 for the beginning of the year, use the international Fisher
effect (IFE) theory to forecast the annual percentage change in the British poundâ€™s value over
the year.
At the end of this month, you (owner of a U.S. firm) are meeting with a Japanese firm to which
you will try to sell supplies. If you receive an order from that firm, you will obtain a forward
contract to hedge the future receivables in yen. As of this morning, the forward rate of the yen
and spot rate are the same. You
You go to a bank and are given these quotes: You can buy a euro for 14 pesos. The bank will pay
you 13 pesos for a euro. You can buy a U.S. dollar for .9 euros. The bank will pay you .8 euros
for a U.S. dollar. You can buy a U.S. dollar for 10 pesos. The bank will pay you 9 pesos for a
U.S. dollar. You have $1,000. Can
Is everybody worse off when interest rates rise?
How is it possible for PPP to hold if the IFE does not?
What is the difference between a transaction gain or loss and a translation gain or loss?
Assume that the spot exchange rate of the Singapore dollar is $.70. The one-year interest rate is
11 percent in the United States and 7 percent in Singapore. What will the spot rate be in one year
according to the IFE? What is the force that causes the spot rate to change according to the IFE?
1. The first arbitrage opportunity relates to locational arbitrage. Holt has obtained spot rate
quotations from two banks in Thailand: Minzu Bank and Sobat Bank both located in Bangkok.
The bid and ask prices of Thai baht for each bank are displayed in the table below: Determine
whether the foreign exchange quotation
Does PPP Eliminate Concerns about Long-Term Exchange Rate Risk? Point Yes. Studies have
shown that exchange rate movements are related to inflation differentials in the long run. Based
on PPP, the currency of a high inflation country will depreciate against the dollar. A subsidiary
in that country should generate infla
In what way is foreign currency translation tied to foreign inflation?
The following information is available: â€¢ You have $500,000 to invest. â€¢ The current spot
rate of the Moroccan dirham is $.110. â€¢ The 60-day forward rate of the Moroccan dirham is
$.108. â€¢ The 60-day interest rate in the United States is 1 percent. â€¢ The 60-day interest rate
in Morocco is 2 percent. a. What i
Sydney Corporation, an Australian-based multinational, borrowed 10,000,000 euros from a
German lender at the beginning of the calendar year when the exchange rate was EUR.60 =
AUD1. Before repaying this oneyear loan, Sydney Corporation learns that the Australian dollar
has depreciated to EUR.55 = AUD1. It also discover
Based on the arguments presented, what do you think should be the functional currency in this
case? MINI CASE The Offshore Investment Fund (OIF) was incorporated in Fairfield,
Connecticut, for the sole purpose of allowing U.S. shareholders to invest in Spanish securities.
The fund is listed on the New
Assume that interest rate parity exists. You expect that the one-year nominal interest rate in the
United States is 7 percent, while the one-year nominal interest rate in Australia is 11 percent. The
spot rate of the Australian dollar is $.60. You will need 10 million Australian dollars in one year.
Today, you purchase
The U.S economy borrowed heavily from the British in the nineteenth century to build a railroad
system. What was the principal debt instrument used? Why did this make both countries better
off?
Describe a statistical test for the IFE.
Using the information in question 1, determine whether covered interest arbitrage is feasible and,
if so, how it should be conducted to make a profit.
Assume that several European countries that use the euro as their currency experience higher
inflation than the United States, while two other European countries that use the euro as their
currency experience lower inflation than the United States. According to PPP, how will the
euroâ€™s value against the dollar be aff
Assume the following information is available for the United States and Europe: a. Does IRP
hold? b. According to PPP, what is the expected spot rate of the euro in one year? c. According
to the IFE, what is the expected spot rate of the euro in one year? d. Reconcile your answers to
parts (a) and(c).
What is the typical relationship between interest rates on three-month Treasury bills, long-term
Treasury bonds, and Baa corporate bonds?
You believe that interest rate parity and the international Fisher effect hold. Assume that the U.S.
interest rate is presently much higher than the New Zealand interest rate. You have receivables of
1 million New Zealand dollars that you will receive in one year. You could hedge the receivables
with the one-year forwa
Explain why PPP does not hold.
How could you use regression analysis to determine whether the relationship specified by PPP
exists on average? Specify the model, and describe how you would assess the regression results
to determine if there is a significant difference from the relationship suggested by PPP.
Would PPP be more likely to hold between the United States and Hungary if trade barriers were
completely removed and if Hungaryâ€™s currency were allowed to float without any
government intervention? Would the IFE be more likely to hold between the United States and
Hungary if trade barriers were completely removed and
Assume that the spot exchange rate of the British pound is $1.73. How will this spot rate adjust
according to PPP if the United Kingdom experiences an inflation rate of 7 percent while the
United States experiences an inflation rate of 2 percent?
Company A is headquartered in Country A and reports in the currency unit of Country A, the
Apeso. Company B is headquartered in Country B and reports in the currency unit of Country B,
the Bol. Company A and B hold identical assets, Apeso100 and Bol100, at the beginning and end
of the year. At the beginning of the year
Assume that the annual U.S. interest rate is currently 8 percent and Germanyâ€™s annual
interest rate is currently 9 percent. The euroâ€™s one-year forward rate currently exhibits a
discount of 2 percent. a. Does interest rate parity exist? b. Can a U.S. firm benefit from investing
funds in Germany using covered intere
Briefly explain the nature of foreign currency translation as (a) A restatement process and (b) A
remeasurement process.
Assume U.S. interest rates are generally above foreign interest rates. What does this suggest
about the future strength or weakness of the dollar based on the IFE? Should U.S. investors
invest in foreign securities if they believe in the IFE? Should foreign investors invest in U.S.
securities if they believe in the IFE
Why is a share of Microsoft common stock an asset for its owner and a liability for Microsoft?
In discussing the reduction of air pollution in the developing world, Richard Fuller of the
Blacksmith Institute, an environmental organization, observed, "It's the 90/10 rule. To do 90
percent of the work only costs 10 percent of the money. It's the last 10 percent of the cleanup that
costs 90 percent of the money." W
Since 1979, China has had a policy that allows couples to have only one child. This policy has
caused a change in the demographics of China. Between 1980 and 2013, the share of the
population under age 14 decreased from 36 percent to 18 percent. And, as parents attempt to
ensure that the lone child is a son, the number
A student makes the following argument: "When a market is in equilibrium, there is no

consumer surplus. We know this because in equilibrium, the market price is equal to the price
consumers are willing to pay for the good." Briefly explain whether you agree with the student's
argument?
Use the following graph of the market for cigarettes to answer the questions. a. According to the
graph, how much is the government tax on cigarettes? b. What price do producers receive after
paying the tax? c. How much tax revenue does the government collect? d. How would the graph
be different if the tax were col
Solved Problem 5.3 contains the statement "Of course, the government actually collects the tax
from sellers rather than from consumers, but we get the same result whether the government
imposes a tax on the buyers of a good or on the sellers." Demonstrate that this statement is
correct by solving the problem, assuming
Tom and Jacob are college students. Each of them will probably get married later and have two
or three children. Each knows that if he studies more in college, he'll get a better job and earn
more money. Earning more will enable them to spend more on their future families for things
such as orthodontia, nice clothes, a
A student argues: "Economic surplus is greatest at the level of output where the difference
between marginal benefit and marginal cost is largest." Do you agree? Briefly explain.
Suppose the following table shows the price of a base model Toyota Prius hybrid and the
quantity of Priuses sold for three years. Do these data indicate that the demand curve for Priuses
is upward sloping? Briefly explain. Year __________ Price _________ Quantity 2014 ..............
$31,880 .............. 35,265 201
Mabel is an advocate for a "zero tolerance" policy regarding all illegal street drugs, including
cocaine, marijuana, and heroin. Mabel has witnessed high crime and violence in her
neighborhood and believes that only if police arrest and prosecute anyone who sells or uses
illegal drugs will she and her neighbors and the
Suppose that you have been hired to analyze the effect on employment from the imposition of a
minimum wage in the labor market. Further suppose that you estimate the demand and supply
functions for labor, where L stands for the quantity of labor (measured in thousands of workers)
and W stands for the wage rate (measure
In the following graph, is the consumer surplus larger with demand curve D1 or demand curve
D2? Briefly explain. Compare the producer surplus with demand curve D1 and with demand
curve D2.
If the equilibrium price and quantity of a product were $100 and 1,000 units per month in 2015
and $150 and 800 units per month in 2016, did this product experience a larger shift in its
demand curve or in its supply curve from 2015 to 2016? Briefly explain.
In an article in the agriculture magazine Choices, Oregon State University economist JunJie Wu
made the following observation about the conversion of farmland to urban development: Land
use provides many economic and social benefits, but often comes at a substantial cost to the
environment. Although most economic cost
The following graph shows a market in which a price floor of $3.00 per unit has been imposed.
Calculate the values of each of the following. a. The deadweight loss. b. The transfer of producer
surplus to consumers or the transfer of consumer surplus to producers. c. Producer surplus after
the price floor is imposed.
What is the law of demand? Use the substitution effect and the income effect to explain why an
increase in the price of a product causes a decrease in the quantity demanded.
A Wall Street Journal article noted that a study by the U.S. Congressional Budget Office
"estimated raising the minimum wage to $10.10 an hour would reduce U.S. employment by
500,000 but lift 900,000 Americans out of poverty." Why might raising the minimum wage
reduce employment? How would it raise some people out of p
The fumes from dry cleaners can contribute to air pollution. Suppose the following graph
illustrates the situation in the dry cleaning market. a. Explain how a government can use a tax on
dry cleaning to bring about the efficient level of production. What should the value of the tax be?
b. How large is the deadweight
What is marginal benefit? Why is the demand curve referred to as a marginal benefit curve?
Suppose that you are the vice president of operations of a manufacturing firm that sells an
industrial lubricant in a competitive market. Further suppose that your economist gives you the
following demand and supply functions: Demand: QD = 45 - 2P Supply: QS = -15 + P What is
the consumer surplus in this market? Wha

Uber is a company that offers people transportation by drivers who use their own cars for this
purpose. Customers pay for their rides with their smart-phone apps. Uber's prices fluctuate with
the demand for the service. This "surge pricing" can result in different prices for the same
distance traveled at different time
What is marginal cost? Why is the supply curve referred to as a marginal cost curve?
What do economists mean by "an economically efficient level of pollution"?
The following graph shows the effect of a tax imposed on soft drinks. Use this graph to answer
the questions. a. Which areas in the graph represent the excess burden (deadweight loss) of the
tax? b. Which areas represent the revenues collected by the government from the tax? c. Would
this tax on soft drinks be consi
What is economic efficiency? How do externalities affect the economic efficiency of a market
equilibrium?
Construct a table like the one in this appendix on page 144 but assume that the rent ceiling is
$2,000 rather than $1,500?
Every year at the beginning of flu season, many people, including the elderly, get a flu shot to
reduce their chances of contracting the flu. One result is that people who do not get a flu shot are
less likely to contract the flu. a. What type of externality (negative or positive) arises from
getting a flu shot? b. O
The following graphs show the supply and demand curves for two markets. One of the markets is
for Tesla automobiles, and the other is for a cancer-fighting drug, without which lung cancer
patients will die. Briefly explain which graph most likely represents which market.
What is market failure? When is market failure likely to arise?
Using the following graph, explain why economic surplus would be smaller if Q1 or Q3 were the
quantity produced than if Q2 is the quantity produced?
In a study at a large state university, students were randomly assigned roommates. Researchers
found that, on average, males assigned to roommates who reported drinking alcohol in the year
before entering college earned GPAs one-quarter point lower than those assigned to nondrinking
roommates. For males who drank frequ
A student was asked to draw a demand and supply graph to illustrate the effect on the market for
smart-watches of a fall in the price of displays used in smart-watches, holding everything else
constant. She drew the following graph and explained it as follows: Displays are an input to
smart-watches, so a fall in the p
Companies that produce toilet paper bleach the paper to make it white. Some paper plants
discharge the bleach into rivers and lakes, causing substantial environmental damage. Suppose
the following graph illustrates the situation in the toilet paper market. Explain how the federal
government can use a tax on toilet pap
Do producers tend to favor price floors or price ceilings? Briefly explain.
Does who is legally responsible for paying a tax-buyers or sellers-make a difference in the
amount of tax each pays? Briefly explain.
What is producer surplus? How does producer surplus change as the equilibrium price of a good
rises or falls?
A number of industry analysts believe that smart-phone prices will decline over the next few
years. If these forecasts are correct, what will be the effect on the demand for smart-watches?
Briefly explain.
A Wall Street Journal article noted that as manufacturers began to produce more 4K television
sets, their production costs declined. a. Use a demand and supply graph to show the effect of
these falling costs on consumer surplus in the marker for 4K televisions. b. Can we be certain
whether these falling costs will in
Yellowstone National Park is in bear country. The National Park Service, at its Yellowstone Web
site, states the following about camping and hiking in bear country: Do not leave packs
containing food unattended, even for a few minutes. Allowing a bear to obtain human food even
once often results in the bear becoming a
Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve
for oranges to shift to the left. Briefly explain whether consumer surplus will increase or
decrease and whether producer surplus will increase or decrease. Use a demand and supply graph
to illustrate your answers.
What is economic efficiency? Why do economists define efficiency in this way?
According to a news story, Pennsylvania's liquor tax is "paid by the seller-the restaurant or bar
owner-when the seller buys liquor from state-run wine and spirit stores." Briefly explain the
effect of how liquor taxes in Pennsylvania are collected has on the price of a glass of wine
purchased by a consumer in a restau
An article in the Wall Street Journal titled "Auto Sales Zoom, Helped by Low Prices at the
Pump" includes a graphic showing increasing car and truck sales in one panel and decreasing
gasoline prices in the other panel. Does the graphic assume that autos and gasoline are substitutes
or complements? Briefly explain.
Suppose that initially the gasoline market is in equilibrium, at a price of $2.50 per gallon and a
quantity of 45 million gallons per month. Then a war in the Middle East disrupts imports of oil
into the United States, shifting the supply curve for gasoline from S1 to S2. The price of gasoline
begins to rise, and consu
Suppose that oil prices sharply increase, while more cities pass laws banning the use of plastic
bags at stores. Use a demand and supply graph to illustrate your answers to the following
questions. a. Can we use this information to be certain whether the equilibrium price of recycled
plastic will increase or decrease?
Suppose the demand for smart-watches increases rapidly during 2016. At the same time, six
more firms begin producing smart-watches. A student remarks that, because of these events, we
can't know for certain whether the price of smart-watches will rise or fall. Briefly explain
whether you agree. Be sure to include a dem
According to a Wall Street Journal article, many restaurant chains, including McDonald's and
Chick-fil-A, have begun serving only chickens that were raised without being fed antibiotics.
Using this method of raising chickens increases their cost. Suppose that consumers react to the
news of restaurants selling antibioti
Use the information on the kumquat market in the table to answer the following questions: a.
What are the equilibrium price and quantity? How much revenue do kumquat producers receive
when the market is in equilibrium? Draw a graph showing the market equilibrium and the area
representing the revenue kumquat producers
In recent years, companies have used fracking, or hydraulic fracturing, in drilling for oil and
natural gas that previously could not be profitably recovered. According to an article in the New
York Times, "horizontal drilling has enabled engineers to inject millions of gallons of high-
pressure water directly into laye
A journalist wrote the following about the effects of falling gasoline prices: "With lower prices,
demand rises and people consume more." Briefly explain whether you agree with the journalist's
analysis?

In most cities, firms that own office buildings can renovate them for use as residential
apartments. According to a news story, in many cities "residential rents are surpassing office
rents." Predict the effect of this trend on the supply of office space in these cities. Use a graph to
illustrate your answer?
Which of the following graphs best represents what happens in the market for hotel rooms at a
ski resort during the winter? Briefly explain. From the graph that you picked, what would be the
result during the winter if hotel rates stayed at their summer level?
As explained in the chapter, economic efficiency is a market outcome in which the marginal
benefit to consumers of the last unit produced is equal to its marginal cost of production. Using
this explanation of economic efficiency, explain why a tax creates a deadweight loss?
In a linear demand equation, what economic information is conveyed by the intercept on the
price axis? Similarly, what economic information is conveyed by the intercept on the price axis
in a linear supply equation?
Suppose that the following table shows the quantity demanded of UGG boots at five different
prices in 2016 and 2017: ______________________________ Quantity Demanded
________________________ (Thousands of pairs of boots) Price ________________ 2016
________________ 2017 $160 ......................... 5,000 .....
Why would economists use the term deadweight loss to describe the effect on consumer surplus
and producer surplus from a price control?
The following four graphs represent four market scenarios, each of which would cause either a
movement along the supply curve for Pepsi or a shift of the supply curve. Match each scenario
with the appropriate graph. a. A decrease in the supply of Coke. b. A drop in the average
household income in the United States fr
John Cassidy, a writer for the New Yorker, wrote a blog post arguing against New York City's
having installed bike lanes. Cassidy complained that the bike lanes had eliminated traffic lanes
on some streets as well as some on-street parking. A writer for the Economist disputed Cassidy's
argument with the following comme
Consider the information given in the table on four consumers in the market for orange juice.
_____________________________ Highest Price Consumer ____________________ Willing
to Pay Jill .................................................. $4 Jose .................................................. 3 Josh ..........
What are the main variables that will cause the demand curve to shift? Give an example of each.

Question and Answer - 26

Uploaded by

Copyright:

Available Formats

Question and Answer - 26

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Question and Answer - 26

Uploaded by

Copyright:

Available Formats

there and the product is displayed in the right way.

Others maintain that channel imagesâ€”such

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Name and briefly describe the three primary goals of a project.

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Would you like to be a project manager? Why, or why not?

See Full Question And Answer at solutionrank.com

What are some of the interdependencies related to a project?

Describe the common indicators of an outdated product costing system?

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Process costing: university enrolments Flagstaff University is exploring the possibility of

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Describe the limitations of activity-based costing?

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Health-aware is a large medical practice in Sydney owned by Dr Palmer, a medical entrepreneur,

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Southern Districts is a private hospital in Wangaratta, Victoria. The hospital is a not-for-profit

See Full Question And Answer at solutionrank.com

What is the key difference between variable and absorption costing?

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

What factors may impede the introductions of ABC?

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Distinguish between a support department and a production department. Give an example of a

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

Regents Corporation is a recently acquired U.S. manufacturing subsidiary located on the

See Full Question And Answer at solutionrank.com

What effect might a fall in stock prices have on business investment?

See Full Question And Answer at solutionrank.com

On April 1, A. C. Corporation, a calendar-year U.S. electronics manufacturer, buys 32.5 million

On January 1, the wholly-owned Mexican affiliate of a Canadian parent company acquired an

See Full Question And Answer at solutionrank.com

Explain the rationale of the PPP theory.

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

What are financial markets important to the health of the economy?

See Full Question And Answer at solutionrank.com

See Full Question And Answer at solutionrank.com

What is the basic activity of banks?