The effective price paid by the company, taking into account hedging, is $55.50 per barrel. The basis on March 2019 is $0.50 per barrel.
The company entered into one futures contract on September 2018 to hedge its purchase of 1,000 barrels of crude oil on March 2019. The futures price in September 2018 was $50.50 per barrel, and the spot price at that time was $54 per barrel.
When the company closes out its position in March 2019, the spot price has increased to $55.50 per barrel, while the futures price for May 2019 is $55 per barrel. The effective price paid by the company, after taking into account hedging, is equal to the spot price at the time of closing out the position, which is $55.50 per barrel.
The basis on March 2019 is calculated as the difference between the spot price and the futures price, which is $55.50 - $55 = $0.50 per barrel. This means that the spot price is $0.50 higher than the futures price.
The impact of the basis on the effective price paid by the company is favorable. Since the basis is positive ($0.50), it reduces the price the company pays from the futures price ($55 per barrel) to the spot price ($55.50 per barrel). This results in a lower effective price paid by the company, providing a benefit in terms of cost.
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View Policies Current Attempt in Progress Sheridan Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour ar
Sheridan Company uses a flexible budget for manufacturing overhead based on direct labor hours. The variable manufacturing overhead costs per direct labor hour are determined by dividing the total variable manufacturing overhead costs by the total direct labor hours.
To calculate the variable manufacturing overhead costs per direct labor hour, we need the following information:
Total variable manufacturing overhead costs: This includes expenses such as indirect materials, indirect labor, and other variable overhead costs directly related to the production process.
Total direct labor hours: This refers to the total number of hours worked by direct labor employees in the manufacturing process.
By dividing the total variable manufacturing overhead costs by the total direct labor hours, we can determine the variable manufacturing overhead costs per direct labor hour.
It's important to note that the variable manufacturing overhead costs may vary from period to period based on factors such as production volume, changes in indirect material prices, and fluctuations in indirect labor requirements. Therefore, it is necessary to recalculate the variable manufacturing overhead costs per direct labor hour for each period to reflect these variations accurately.
By utilizing a flexible budget based on direct labor hours, Sheridan Company can estimate and allocate manufacturing overhead costs more accurately, as it takes into account the direct labor hours required for each level of production. This approach allows for better cost control and planning, as it aligns overhead expenses with the actual level of activity in the manufacturing process.
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Hyundai Kia Motors sees football sponsorships as a core element of its marketing strategy and as an efficient way to communicate with customers by sharing their passion for football and building an emotional connection. Through its football sponsorship, Hyundai Kia Motors aims to position itself as a brand bringing the excitement of the world's greatest game to football fans all over the world, and remains deeply committed to supporting and furthering the development of this beautiful game. After the successful 2006 FIFA World Cup Germany™ Hyundai, along with its sister company Kia, looks forward to maintaining its role to support this great event as the Official Automotive Partner of FIFA until 2014. Hyundai began its alliance with FIFA in 1999, when the agreement to sponsor 13 FIFA competitions including the 2002 FIFA World Cup Korea/Japan was signed. This agreement was subsequently extended to the 2006 FIFA World Cup Germany, where Kia began its football sponsorship campaign in a global event. In 2005, Hyundai Kia Motors signed a long-term agreement to continue the partnership until year 2014 as one of the six top FIFA Partners. This sponsorship package includes comprehensive rights for all FIFA competitions, including the FIFA Women's World Cup, the FIFA U-20 and U-17 World Cups for both female and male players, the FIFA Beach Soccer World Cup, the FIFA Interactive World Cup, the FIFA Futsal World Cup, the FIFA Confederations Cup, the FIFA Club World Cup (2011-2014) as well as two editions of the FIFA World Cup™ Ground transportation provider Ground transportation is critical to the successful staging of an international event like the FIFA World CupTM, Without a large fleet of modern vehicles that offer reliability, comfort and safety. the smooth operation of such mammoth scale event is unimaginable. Having proven itself as a dependable partner and vehicle supplier in a number of FIFA competitions including the 2002 and 2006 FIFA World CupsTM, Hyundai, along with Kia, has once again taken the opportunity to play a major role as the ground transportation provider until 2014. For the 2006 FIFA World Cup GermanyTM, 900 Hyundai passenger cars/vans, and 3,600 bus days were at the disposal of FIFA officials, national teams, members of the organizing committee, referees and media representatives. Hyundai provided the fleet of buses that were used for the inter-city shuttle services, as well for the transportation of the 32 national teams which were decorated with the national team color, flag and slogans. Hyundai Kia Motors will once again play the very same role to support the all FIFA competitions including the 2010 and 2014 FIFA World Cups, as it did successfully for the 2006 FIFA World Cup Germany with advanced technology and a wide range of models to keep rolling the football globally. Questions .Referring to the appropriate theory analyze the current strategy of Hyundai? 2.5 marks What could be the objectives behind this strategy? 2.5 marks
Hyundai Kia Motors employs football sponsorships as a core element of its marketing strategy to connect with customers and build an emotional connection. The company aims to position itself as a brand that brings the excitement of football to fans worldwide and supports the development of the sport. The strategy includes long-term partnerships with FIFA and providing ground transportation for international events like the FIFA World Cup.
The current strategy of Hyundai Kia Motors can be analyzed using the theory of sports marketing and sponsorship. By associating its brand with football through sponsorships, Hyundai Kia Motors aims to leverage the popularity and passion for the sport to enhance its brand image, increase brand awareness, and connect with its target audience. This strategy allows the company to tap into the emotional attachment and loyalty that football fans have towards the sport, thereby building a positive perception of the brand.
The objectives behind this strategy can include several aspects. Firstly, by positioning itself as the Official Automotive Partner of FIFA and providing ground transportation, Hyundai Kia Motors seeks to enhance its global visibility and brand recognition on a large scale, as FIFA events attract a massive global audience. Secondly, the company aims to create an emotional connection with customers by aligning its brand with the excitement and passion of football. This emotional connection can help build brand loyalty and encourage customer engagement. Additionally, by supporting the development of football, Hyundai Kia Motors demonstrates its commitment to community involvement and corporate social responsibility.
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Assume a monopolist with marginal costs of 4 and no fixed cost seils to two different groups of by
When a monopolist with marginal costs of 4 and no fixed cost sells to two different groups of buyers, he/she will try to maximize the profit. Hence, the monopolist will try to achieve a price discrimination strategy. The monopolist will sell the good to different groups at different prices depending on the group's willingness to pay.
This is possible when:
1. The monopolist has market power over two groups of consumers who have different elasticities of demand.
2. The monopolist can prevent the consumers from reselling the good from one market to the other.
3. The monopolist can identify the consumer groups and impose a different price on each group.
Hence, to achieve price discrimination, the monopolist must be able to separate the two groups of buyers and charge a different price to each group. Therefore, the monopolist will first identify the groups of consumers. For example, if he/she is selling laptops, the two groups can be students and professionals. The monopolist will then charge a higher price to the group of consumers with a lower price elasticity of demand, i.e. those who are willing to pay more. In this case, professionals are willing to pay more than students, so they will be charged a higher price. On the other hand, students will be charged a lower price.
The monopolist can now sell more units of the good in the market with lower demand (students) at a lower price and fewer units in the market with higher demand (professionals) at a higher price. This way, he/she can maximize profit. Hence, the monopolist will charge a higher price to the group with the lower elasticity of demand (professionals) and a lower price to the group with the higher elasticity of demand (students). Therefore, we can say that when a monopolist with marginal costs of 4 and no fixed cost sells to two different groups of buyers, he/she will try to achieve price discrimination by charging different prices to each group depending on their willingness to pay. The monopolist will charge a higher price to the group with the lower elasticity of demand and a lower price to the group with the higher elasticity of demand.
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[Balance sheet for fresh-start reporting evaluation] Tessa Ltd. which operated under Chapter 11 of the bankruptcy act, released its balance sheet when they submited their reorganization plan as follows (in thousands): August 1, 2014 Cash and equivalents $ 275 Accounts receivable 200 Inventories 250 Land 300 Buildings - net 350 Equipment - net 300 Total assets $ 1,675 Liabilities subject to compromise $ 1,500 Accounts payable 200 Wages payable 100 Bond payable 400 Interest payable 100 Total liabilities $ 2,300 Common stock $ 900 Deficit (1,525) Total equity $ 1,675 Tessa’s reorganization plan is as follows: 1. Bondholders agree to accept $200,000 of new common stock, $150,000 of senior debt of 12% bonds, and $50,000 cash payable at December 31, 2014. 2. Priority tax claims of $100,000 will be paid after reorganization plan is confirmed. 3. Accounts payable will be settled using $200,000 of new common stock and $300,000 of subordinate debts. 4. Current accrued interest payable on bonds is forgiven. 5. Equity holders will exchange their stock with $250,000 of new common stock. REQUIRED: Show calculations and determine whether Tessa is confirmed for a fresh-start reporting.
The company Tessa Ltd is not confirmed for fresh-start reporting, as total liabilities and equity after the reorganization plan exceed the liabilities and assets before the plan.
The bankruptcy laws for firms are the ideal means of offering such entities a fresh start, which is the opportunity to rebuild their businesses and begin again with a clean slate. In this regard, a new accounting principle named Fresh-Start Reporting is implemented to calculate the total liabilities and assets of the firms.
The aim of fresh-start reporting is to reduce the book value of a firm's assets and equities to a more reasonable level of realizable value in order to obtain a fair presentation of the firm's status after bankruptcy.
1. Bondholders agree to accept $200,000 of new common stock, $150,000 of senior debt of 12% bonds, and $50,000 cash payable at December 31, 2014.
2. Priority tax claims of $100,000 will be paid after reorganization plan is confirmed.
3. Accounts payable will be settled using $200,000 of new common stock and $300,000 of subordinate debts.
4. Current accrued interest payable on bonds is forgiven.
5. Equity holders will exchange their stock with $250,000 of new common stock.
At the time of reorganization:
Total assets of the company = $ 1,675 thousand
Total liabilities of the company = $ 2,300 thousand
Total equity of the company = $ 1,675 thousand
After reorganization: We will calculate the new value of all the assets, liabilities, and equity according to the reorganization plan.
New value of assets = Cash and equivalents + New common stock + Senior debt of 12% bonds + Land + Buildings - net + Equipment - net
New value of assets = $ 275 + $ 200 + $ 150 + $ 50 + $ 300 + $ 350 + $ 300
New value of assets = $ 1,625 thousand
Liabilities subject to compromise + Senior debt of 12% bonds + subordinate debts
New value of liabilities = $ 1,500 + $ 150 + $ 300
New value of liabilities = $ 1,950 thousand
Deficit of $1,525 will be adjusted in the new equity.
New value of equity = New common stock - Deficit
New value of equity = $ 200 + $ 250 - (-$ 1,525)
New value of equity = $ 975 thousand
The new balance sheet will be:
Cash and equivalents$ 275
New common stock$ 200
Accounts receivable$ 200
Inventories$ 250
Land$ 300
Buildings - net$ 350
Equipment - net$ 300
Total assets$ 1,675
Liabilities subject to compromise$ 1,500
Senior debt of 12% bonds$ 150
Subordinate debts$ 300
Total liabilities$ 1,950
New common stock$ 450
Deficit$ 0
Total equity$ 450
Total liabilities and equity$ 2,400
Therefore, the company Tessa Ltd is not confirmed for fresh start reporting.
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"Prevention of defects is better than testing for defects." - If you believe in this adage, briefly describe the various activities/initiatives you would undertake as: is the CEO of your organization • the Quality Manager . the Project Manager a Programmer to ensure the Quality of your software product or service. Support your answers with lucid examples. [4 marks]
Prevention of defects is better than testing for defects. This adage is vital in ensuring the quality of software products or services. Below are the various activities/initiatives that can be undertaken by the CEO, Quality Manager, Project Manager, and Programmer to ensure the Quality of software products or services.CEOAs the CEO, some of the activities/initiatives that can be undertaken are;Ensure that the company invests in a top-notch quality assurance program
Ensure that each employee is well trained in the company's quality program and their roleEnsure that the company has policies, procedures, and guidelines that meet industry standardsExample; investing in tools that can help in quality assurance programs, such as automation testing tools. Quality ManagerAs the Quality Manager, the following activities/initiatives can be undertaken;Ensure that there are quality policies, guidelines, and procedures that are implemented to prevent defectsEnsure that the Quality management system is well documented and implemented in all departmentsProvide training and support to the team in implementing quality policiesExample; Developing a quality management system based on ISO 9001.Project ManagerAs the Project Manager, some of the activities/initiatives that can be undertaken are;Ensure that the project is managed using a well-documented and well-structured project management methodologyEnsure that the project plan is comprehensive and covers all the required project phasesEnsure that all the requirements are captured, documented, and tested
Therefore, the CEO, Quality Manager, Project Manager, and Programmer should take the necessary measures to ensure that there are well-documented policies, procedures, and guidelines to prevent defects. They should also ensure that they invest in tools that can help in quality assurance programs, develop a project plan, manage the project using a well-structured project management methodology, and conduct regular code reviews and testing.
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Discuss the viability of the Secondhand Fashion trend during, and post-, COVID-19 pandemic. What operations actitivity/services can be introduced to ensure the long-term sustainbility of such a trend?
The viability of the Secondhand Fashion trend during and post-COVID-19 pandemic: As the fashion industry's environmental impact has been increasingly scrutinized, the secondhand market has increased in importance in recent years.
COVID-19 has also had a significant impact on consumer behavior, including fashion purchases, and the secondhand market has gained even more traction since the outbreak. As a result, the secondhand clothing market is projected to expand at a CAGR of 14.0 percent from 2020 to 2027, according to Grand View Research. As a result, it is quite clear that the secondhand fashion trend is not only feasible but also has a lot of potential for long-term growth. However, certain steps must be taken to guarantee its long-term sustainability. Here are some operations activity/services that can be introduced to ensure the long-term sustainability of such a trend:1. The advent of virtual wardrobe solutions: The use of virtual wardrobe solutions, which enable users to view and manage their wardrobes digitally, can be introduced. It reduces the number of resources consumed in clothing production while also increasing customer engagement with their current wardrobe.2. Innovative subscription models: New subscription models, such as clothes swapping or rental services, can be introduced. This helps to reduce the demand for new clothing production and encourages customers to be more environmentally conscious when it comes to fashion.3. Expansion of online marketplaces: Existing secondhand fashion marketplaces, such as Depop, Poshmark, and ThredUp, can be expanded to include more categories, sizes, and price points to reach a larger audience. They can also utilize technology like AI and machine learning to improve customer experience and increase efficiency.4. Developing a circular business model: The fashion industry can adopt a circular business model by ensuring that materials are recycled or upcycled rather than discarded. This also assists in the reduction of waste, emissions, and resource consumption.5. Support for Local Businesses: Support for Local Businesses: Instead of buying from big-box retailers, support local thrift stores, consignment shops, and small-scale designers. It aids in the growth of local economies and reduces carbon emissions caused by transportation.
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in a competitive industry, the industry’s short-run supply curve is
In a competitive industry, the industry’s short-run supply curve is upward sloping. Short-run supply curve is a graphical representation that shows the relationship between the price of a good and the quantity supplied .
Quantity of that good during the period of time in which the price of the good or the price of an input into the production process of the good remains constant. In a competitive industry, the industry’s short-run supply curve is upward sloping. The short-run supply curve slopes upward for the following reasons:
At lower prices, less quantity is produced as it does not cover the cost of production.If the prices are high, more goods are produced as there is a higher profit margin for the sellers.Thus, at a higher price, suppliers can afford to produce more as they will receive a higher profit. This is why an upward sloping supply curve is prevalent in a competitive industry.
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The process of getting a product to a customer primarily moves Multiple Choice downstream from the supplier to the customer. upstream from the customer to other members of the supply chain. across stream from the supplier to the retailer to the customer. alternatingly down and upstream, depending on the product. downstream to the supplier and then upstream to the customer
The process of getting a product to a customer primarily moves downstream from the supplier to the customer.
When we talk about the movement of a product, downstream refers to the flow of the product from the supplier to the customer. This means that the product is moving in a forward direction towards the end user. The supplier could be the manufacturer or distributor of the product, and they are responsible for sending the product downstream through various intermediaries such as wholesalers and retailers until it reaches the customer.
The downstream movement involves activities like production, inventory management, transportation, warehousing, and delivery. These activities aim at ensuring that the right products are delivered to the customers in the right quantity, quality, and time.
Therefore, the process of getting a product to a customer primarily moves downstream from the supplier to the customer.
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Prepare the statement of income of the Total U.S. Property/Casualty Insurance Industry with the below information. Also show your calculation at the end. The total amount of premium earned is $800,000
Statement of Income: Total U.S. Property/Casualty Insurance Industry
Premium Revenue: $800,000
Explanation:
The statement of income represents the financial performance of the Total U.S. Property/Casualty Insurance Industry. Based on the given information, the total amount of premium earned is $800,000.
The statement of income typically includes various sections such as revenue, expenses, and net income. However, since only the premium revenue is provided in the question, we will focus on that item for this statement.
In this case, the premium revenue is $800,000, which represents the total amount of premiums earned by the insurance industry. This revenue is generated from policyholders' payments for property and casualty insurance coverage.
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A limited liability partnership (LLP) has which of the
following characteristics?
A limited liability partnership (LLP) has the following characteristics: An LLP, or a limited liability partnership, is a type of partnership that offers limited liability protection for its owners.
In an LLP, each partner is only responsible for their own actions and is not liable for the actions of other partners, unlike a general partnership.There are several characteristics of limited liability partnerships, including limited liability protection for owners, the ability to be taxed like a partnership, the ability to continue operating even after the death of one or more partners, and the ability to limit the transfer of ownership interests. Additionally, LLPs typically have a more formal organizational structure than general partnerships.Limited liability partnerships are often used by professional service providers, such as lawyers, accountants, and architects. They are also used by companies that want to limit the liability of their owners while still retaining the tax benefits of a partnership. Overall, an LLP is a flexible business structure that offers a number of advantages to its owners, including limited liability protection and tax benefits.
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Case 4-2 Save-Mart* Save-Mart was a retail store. Its account balances on February 28 (the end of its fiscal year), before adjust- ments, were as shown below. Debit Balances Credit Balances Accumulated depreciation on store equipments 11,420 Cash Accounts receivable Merchandise inventory Store equipment Supplies inventory Prepaid insurance Selling expense Sales salaries Miscellaneous general expense Sales discounts Interest expense Social Security tax expense Total $ 88,860 -1-27,430 903, 130 70,970 17,480 12,430 10,880 47,140 18,930 3,340 7,100 3,400 $1,311,090 Notes payable Accounts payable Common stock Retained earnings Sales 88,500 88,970 100,000 33,500 988,700 Total $1,311,090 7. The statement sent by the bank, adjusted for checks outstanding, showed a balance of $88,110. The dif- ference represented bank service charges. Questions The data for the adjustments are 1. Cost of merchandise sold, $604,783. 2. Store equipment had a useful life of seven years. (All equipment was less than seven years old.) 3. Supplies inventory, February 28, $3,877. (Pur- chases of supplies during the year were debited to the Supplies Inventory account.) 4. Expired insurance, $7,125. 5. The note payable was at an interest rate of 9 per- cent, payable monthly. It had been outstanding throughout the year. 6. Sales salaries earned but not paid to employees, $2,340. 1 Journalize and post closing entries. 2 Prepare an income statement for the year and a bal- ance sheet as of February 28. Question 3 Explain the effects on balance sheet and income statement accounts if adjusting entries were not prepared by Save-Mart. Identify the amount of understatement or overstatement in EACH accounts.
Save-Mart would misstate balance sheet and income statement accounts without revising entries. Effects on each account and understatement or overstatement amounts:
Accumulated depreciation on store equipment: Without the depreciation adjustment, this account's balance would be understated, lowering the balance sheet's total assets value.
Inventory: Without the cost of product sold adjustment entry, inventory would be inflated. This would exaggerate balance sheet assets and understate income statement cost of goods sold.
Supplies inventory: Without the correcting entry, this account would be inflated. The balance sheet would exaggerate assets.
Prepaid insurance: The account balance would be overestimated without the expired insurance adjusting item. This would exaggerate balance sheet assets and understate income statement expenses.
Sales salaries are payable: Without the adjustment entry for sales salaries earned but not paid, this account would be overstated. This would understate balance sheet obligations and income statement expenses.
Without these adjustment entries, financial statements, net income, and the company's financial condition would be wrong. Save-Mart must accurately record and report these adjustments to ensure the financial statements accurately reflect the company's financial performance.
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Calculate the elasticity of demand, if the demand function is Q=200-6p + 20Y, at the point where p = 12 and Q = 10. The elasticity of demand is ε = -7.2. (Enter your response rounded to one decimal place and include a minus sign.) Calculate the elasticity of demand, if the demand function is - 1.5 Q = 10p The elasticity of demand is & = . (Enter your response rounded to one decimal place and include a minus sign.)
The elasticity of demand for the second scenario is ε = 1.0 (positive, as the minus sign in the demand function is already accounted for in the calculation).
To calculate the elasticity of demand, we can use the following formula:
ε = (% change in quantity demanded) / (% change in price)
Let's calculate the elasticity of demand for each scenario:
Scenario 1:
Demand function: Q = 200 - 6p + 20Y
Given: p = 12 and Q = 10
To find the elasticity at this point, we need to calculate the percentage change in quantity demanded and the percentage change in price.
Percentage change in quantity demanded:
ΔQ/Q = (Q2 - Q1) / Q1 = (10 - Q1) / Q1
Percentage change in price:
Δp/p = (p2 - p1) / p1 = (12 - p1) / p1
Using the given information, we substitute the values into the formulas:
ΔQ/Q = (10 - Q1) / Q1 = (10 - 10) / 10 = 0
Δp/p = (12 - p1) / p1 = (12 - 12) / 12 = 0
Now we can calculate the elasticity of demand:
ε = (% change in quantity demanded) / (% change in price) = 0 / 0 = undefined
Therefore, the elasticity of demand is undefined for this scenario.
Scenario 2:
Demand function: -1.5Q = 10p
To calculate the elasticity, we need to rearrange the equation to solve for Q:
Q = (10p) / -1.5
Now, we differentiate Q with respect to p to find the derivative:
dQ/dp = 10 / -1.5
To find the elasticity, we multiply the derivative by p/Q:
ε = (dQ/dp) * (p/Q) = (10 / -1.5) * (p / [(10p) / -1.5])
Simplifying:
ε = (10 / -1.5) * (-1.5 / 10) = 1
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Quality Technology (QT), Inc. was founded by two first-year college students to produce a knockoff real estate board game similar to the popular Parker Brothers’ game Monopoly. Initially, the partners started the company just to produce a board game based in popular local landmarks in their small college town, as a way to help pay for their college expenses. However, the game was a big success and because they enjoyed running their own business, they decided to pursue the business full-time after graduation.
QT has grown rapidly over the last couple of years, designing and producing custom real estate trading games for universities, municipalities, chambers of commerce, and lately even some businesses. Orders range from a couple of hundred games to an occasional order for several thousand.
QT’s orders are either for a new game board that has not been produced before, or a repeat orders for a game that was previously produced. If the order is for a new game, the client first meets with a graphic designer from QT’s art department and the actual game board is designed. The design of the board can take anywhere from a few hours to several weeks, depending on how much the client has thought about the game before the meeting. All design work is done on personal computers.
After the design is approved by the client, a copy of the computer file containing the design is transferred electronically to the printing department. Workers in the printing department load the file onto their own personal computers and print out the board design on special decals, 19.25 inches by 19.25 inches, using high-quality color inkjet printers. The side of the decal that is printed on is usually light gray, and the other side contains on adhesive that is covered by a removable backing.
The printing department is also responsible for printing the property cards, game cards, and money. The money is printed on colored paper using standard laser printers. Ten copies of a particular denomination are printed on each 8.5-inch by 11-inch piece of paper. The money is then moved to the cutting department, where it is then cut into individual bills. The property cards and game cards are produced similarly, the major difference being that they are printed on material resembling poster board.
In addition to cutting the money, game cards, and property cards, the cutting department also cuts the cardboard that serves as the substrate for the actual game board. The game board consists of two boards created by cutting a single 19-inch by 19.25 inch piece of cardboard in half, yielding two boards each measuring 19.25 inches by 19.5 inches. After being cut, game boards, money, and cards are stored in totes in a work-in-process area and delivered to the appropriate station on the assembly line as needed.
Because of its explosive growth, QT’s assembly line was never formally planned. It simply evolved into the 19 stations shown in Table 1.
Questions
What type(s) of process strategy (i.e., transformation system(s)), does QT use?
What is the cycle time of the 19-stations line? What is its efficiency?
What is the line’s maximum capacity per day, assuming that it is operated for one 8-hours shift less two 15-minute breaks? Assuming that QT operates 200 days per year, what is its annual capacity?
Assign tasks to workstations according to the "greatest number of following tasks" approach.
Calculate the efficiency of the new process
1. Process Strategy: QT uses a combination of intermittent and assembly line process strategies. The intermittent process strategy is used in the design department, where each order for a new game board is treated as a unique project. The assembly line process strategy is used in the printing, cutting, and assembly departments, where standardized tasks are performed in a sequential manner.
2. Cycle Time and Efficiency: The cycle time is the total time it takes for a product to go through the entire assembly line. The given information does not provide specific data on cycle time. Efficiency, which measures the actual output compared to the maximum possible output, cannot be determined without the cycle time.
3. Maximum Capacity and Annual Capacity: The maximum capacity per day can be calculated by considering the available operating hours. Assuming an 8-hour shift with two 15-minute breaks, the available working time per day is 8 hours - 2 breaks = 7.5 hours.
To calculate the line's maximum capacity per day, we need the cycle time (not provided) and the number of stations (19):
Maximum Capacity per Day = (Available working time per day) / (Cycle time)
Annual Capacity = Maximum Capacity per Day * Operating days per year
Without the cycle time, we cannot determine the line's maximum capacity or annual capacity.
4. Task Assignment: The "greatest number of following tasks" approach is not explicitly described in the given information. Without detailed information on task dependencies and the specific tasks involved, it is not possible to assign tasks to workstations using this approach.
5. Efficiency of the New Process: The efficiency of the new process cannot be calculated without the cycle time. Efficiency is typically calculated as the ratio of actual output to the standard output, given by the formula:
Efficiency = (Actual Output) / (Standard Output) * 100%
However, without the specific values of actual output and standard output, the efficiency cannot be determined in this case.
Please note that the given information lacks specific data necessary to perform certain calculations and assign tasks according to the mentioned approach.
An investor has $500,000 and wishes to invest it in one of two investment alternatives, namely ?
An investor has $500,000 and wishes to invest it in one of two investment alternatives. The two investment alternatives that the investor can choose from are:
A). A mutual fund that has an expected annual rate of return of 12%.
B). A small business venture that has an expected annual rate of return of 25%.
As the investor has two investment options and he wants to select one that will yield him the highest returns. But as every investment has its own risk and reward factor so the investor has to be very careful in analyzing the advantages and disadvantages of both investment alternatives and then only he should select the one that will suit his objectives the most.However, if we see from the expected rate of return point of view, then investing in the small business venture can earn the investor a higher expected annual rate of return of 25% as compared to the mutual fund which has an expected annual rate of return of 12%.But at the same time, the small business venture involves a higher risk factor than investing in a mutual fund.
The investor has to bear many uncertainties in terms of the success or failure of the business venture and also there is the probability of losing his entire investment in case the venture fails. Therefore, investing in a small business venture can yield higher returns, but it is riskier than investing in a mutual fund.
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the accounting professional bodies have recently introduced new financial accounting stands in the areas such as revenue recognition, lease accounting and current expected credit loses.accountants need to understand the factors and rationals behind these changes so that they can better prepare themselves to provide professional services to their clients.
using one of three theories (public interest theory,capture theory, and economic interest theory)provide two possible reasons or examples that might have caused the changes to these standards
The changes to financial accounting standards, such as revenue recognition, lease accounting, and current expected credit losses and reasons behind these changes.
Two possible reasons or examples that might have caused the changes to these standards are: Public Interest Theory: Enhancing transparency and comparability: The accounting bodies may have introduced changes to the standards to promote transparency and comparability of financial information. By providing clearer guidelines on revenue recognition, lease accounting, and credit losses, the standards aim to ensure that financial statements accurately reflect the economic reality of transactions, which benefits investors, creditors, and other stakeholders.
Addressing concerns of financial reporting abuses: Changes in standards may be driven by a desire to address concerns related to financial reporting abuses, such as earnings manipulation or lease structuring.
Economic Interest Theory: Aligning accounting with economic reality: The changes to accounting standards may be motivated by the need to align financial reporting with the underlying economic substance of transactions. For example, the new revenue recognition standard aims to recognize revenue when control of goods or services is transferred to the customer, reflecting the economic reality of the transaction.
Responding to changes in business practices: Accounting standards may evolve to keep pace with changes in business practices. For instance, the changes in lease accounting standards were driven by the need to provide a more accurate representation of lease obligations on the balance sheet, considering the significant role leases play in many industries.
These examples highlight how the public interest theory and economic interest theory can provide insights into the motivations behind changes in accounting standards, as they seek to promote transparency, address concerns, align accounting with economic reality, and adapt to changing business practices.
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How do neoclassical economists define the "optimal level of pollution"? What type of power enters into this definition, and how?
Neoclassical economists define the "optimal level of pollution" as the point at which the marginal cost of reducing pollution equals the marginal benefit gained from reducing pollution. In other words, it is the level of pollution that maximizes overall social welfare or economic efficiency.
To determine this optimal level, neoclassical economists consider the trade-off between the costs of pollution abatement and the benefits gained from environmental improvements. The marginal cost of pollution reduction refers to the cost incurred in reducing each additional unit of pollution. The marginal benefit of pollution reduction represents the additional value or welfare gained by society from reducing pollution.
In this analysis, the type of power that enters into the definition of the optimal level of pollution is the power to make informed decisions based on cost-benefit analysis. Neoclassical economists emphasize the importance of individual decision-making, market mechanisms, and price signals to allocate resources efficiently. By weighing the costs and benefits of pollution reduction, individuals, firms, and policymakers can make choices that maximize overall societal welfare and achieve an optimal level of pollution that balances economic and environmental considerations.
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Write short notes with an example of Responsible and
Irresponsible business.
Responsible business refers to the ethical and social practices that firms use to minimize harm to stakeholders while maximizing profits. On the other hand, irresponsible business refers to the firms that prioritize profits above ethical, social, and environmental responsibilities.
Example of responsible business is The Body Shop, a cosmetic and skincare company that is socially responsible and conscious. The Body Shop emphasizes the use of natural ingredients and environmentally friendly manufacturing practices, such as recycling and sustainable sourcing.
They also support several charitable organizations, such as the World Land Trust and the Red Cross, as part of their corporate social responsibility.Irresponsible business practices often lead to ethical, social, and environmental issues that harm stakeholders.
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The ability of an individual or group to influence public policy is dependent on the political power that person or organization possesses. Identify an individual, group, or organization that you feel has the political power to influence health policy. What type of power do they have
The pharmaceutical industry possesses significant political power to influence health policy.
The pharmaceutical industry wields considerable political power due to various factors. Firstly, pharmaceutical companies often have substantial financial resources, allowing them to invest in lobbying efforts, campaign contributions, and public relations campaigns. This financial power enables them to shape health policy by influencing lawmakers and policymakers. Additionally, pharmaceutical companies possess expertise and knowledge in the field of healthcare and medicine. They often employ scientists, researchers, and healthcare professionals who can provide expert opinions and advice on health policy matters. This expertise gives them credibility and influence when advocating for specific policies or regulations that align with their interests.
Furthermore, pharmaceutical companies often have strong relationships and partnerships with healthcare providers, professional associations, and patient advocacy groups. These alliances allow them to leverage collective voices and mobilize support for their preferred policy outcomes. Overall, the pharmaceutical industry's political power stems from its financial resources, expertise in healthcare, and strategic alliances, all of which enable them to shape health policy decisions in ways that align with their interests.
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Which statement concerning revaluations that reverse prior adjustments in value is untrue?
a. A revaluation decrease that reverses a previous increase should be recognised as a decrease in other comprehensive income to the extent of any credit balance existing in the revaluation surplus reserve account.
b. When a change in valuation is a reversal of a previous revaluation, accumulated depreciation does not have to be written off against the asset before the revaluation is recorded.
c. A revaluation decrease that reverses a previous decrease should be recognised in the income statement to the extent that it reverses any previously downward revaluation of the same asset.
d. A debit to a revaluation surplus reserve account that is a reversal of a previous revaluation increase should not exceed the amount of the original credit.
The correct answer is b. When a change in valuation is a reversal of a previous revaluation, accumulated depreciation does not have to be written off against the asset before the revaluation is recorded.
According to accounting standards, when a change in valuation is a reversal of a previous revaluation, accumulated depreciation should be written off against the asset before the revaluation is recorded. This is done to adjust the carrying amount of the asset to its recoverable amount. Therefore, statement b, which suggests that accumulated depreciation does not have to be written off in such cases, is untrue.
The other statements are true:
a. A revaluation decrease that reverses a previous increase should be recognized as a decrease in other comprehensive income to the extent of any credit balance existing in the revaluation surplus reserve account. This ensures that the decrease in value is reflected in the comprehensive income.
c. A revaluation decrease that reverses a previous decrease should be recognized in the income statement to the extent that it reverses any previously downward revaluation of the same asset. This ensures that the increase in value is recognized in the income statement to offset the previously recognized decrease.
d. A debit to a revaluation surplus reserve account that is a reversal of a previous revaluation increase should not exceed the amount of the original . This ensures that the reversal does not result in a negative balance in the revaluation surplus reserve account.
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Discuss what types of information must be reported to the board
of accountancy. Why do you think this is an important
requirement?
Information that must be reported to the board of accountancy includes disciplinary actions, licensure status, and professional misconduct.
Reporting certain information to the board of accountancy is crucial for maintaining transparency and accountability within the accounting profession. Disciplinary actions taken against accountants, such as license revocations or suspensions, must be reported to ensure that the board is aware of any misconduct or unethical behavior. Similarly, the licensure status of accountants, including new applications, renewals, or changes in status, needs to be reported to ensure compliance with regulatory requirements.
Furthermore, reporting instances of professional misconduct, such as fraud or negligence, is essential for protecting the public interest and upholding the integrity of the accounting profession. By requiring accountants to report this information, the board of accountancy can take appropriate action, such as conducting investigations, imposing sanctions, or providing guidance to prevent future misconduct. Overall, this reporting requirement helps maintain professional standards, protects the public, and fosters trust in the accounting profession.
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MFRS 3 Business Combinations permits a non-controlling interest at the date of acquisition to be valued by one of two methods: i. at its proportionate share of the subsidiary's identifiable net assets or ii. at its fair value. Required: Explain the difference that the accounting treatment of these alternative methods could have on the consolidated financial statements, including where consolidated goodwill may be impaired.
MFRS 3 Business Combinations allows a non-controlling interest to be valued at its proportionate share of the subsidiary's identifiable net assets or its fair value as of the acquisition date. The accounting treatment of these methods differs significantly. Identifiable net assets' proportionate share method results in a lower non-controlling interest valuation.
As a result, goodwill would be higher in the consolidated financial statements because it would represent the difference between the purchase price and the subsidiary's net assets' fair value. This may increase the likelihood of goodwill impairment if the non-controlling interest is not significant.In contrast, when the non-controlling interest is valued at fair value, the resulting goodwill is lower because it represents the difference between the purchase price and the fair value of the net assets acquired.
This may lead to a lower probability of goodwill impairment because it is less likely that the goodwill amount is too high. As a result, the accounting treatment of these two methods will affect consolidated financial statements.
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Information given in the Question is as under:
Prairie Motels
Total number of rooms = 2,900 Average Occupancy = 50%
Operating Costs per day per room (Fixed + Variable) = $29
During April,
Occupancy Rate = 35%
Total Operating costs = $1,222,350
Requirement: Variable cost per room day, Fixed costs per month & Total operating costs during may
Based on the given information, the calculated values are as follows:
Variable cost per room day ≈ $11.89
Fixed costs per month ≈ $812,840.75
Total operating costs during May ≈ $3,495,000
To calculate the variable cost per room day, fixed costs per month, and total operating costs during May, we can use the given information and perform the necessary calculations. Let's break it down step by step:
Step 1: Calculate the variable cost per room day:
Total Operating costs for April = $1,222,350
Number of rooms = 2,900
Average Occupancy for April = 35% = 0.35
Variable cost per room day = Total Operating costs for April / (Number of rooms * Average Occupancy for April)
Variable cost per room day = $1,222,350 / (2,900 * 0.35)
Variable cost per room day ≈ $11.89
Step 2: Calculate the fixed costs per month:
Fixed costs include costs that do not vary with the number of rooms occupied. These costs are incurred regardless of the occupancy rate.
Total Operating costs for April = $1,222,350
Variable cost per room day = $11.89
Number of rooms = 2,900
Average Occupancy for April = 35% = 0.35
Fixed costs per month = Total Operating costs for April - (Variable cost per room day * Number of rooms * Average Occupancy for April)
Fixed costs per month = $1,222,350 - ($11.89 * 2,900 * 0.35)
Fixed costs per month ≈ $812,840.75
Step 3: Calculate the total operating costs during May:
Total Operating costs for April = $1,222,350
Average Occupancy for May = 50% = 0.5
Total operating costs during May = Total Operating costs for April / Average Occupancy for April * Average Occupancy for May
Total operating costs during May = $1,222,350 / 0.35 * 0.5
Total operating costs during May ≈ $3,495,000
Therefore, based on the given information, the calculated values are as follows:
Variable cost per room day ≈ $11.89
Fixed costs per month ≈ $812,840.75
Total operating costs during May ≈ $3,495,000
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give five ways how culture complicate the organization
activities
Culture can complicate organizational activities in several ways. Some of the key ways include communication challenges, differences in work styles and norms, resistance to change, conflicting values and priorities, and potential for misunderstandings and misinterpretations.
Communication Challenges: Cultural differences can lead to language barriers, different communication styles, and varying levels of directness or indirectness. This can result in misunderstandings, misinterpretations, and ineffective communication among team members.Differences in Work Styles and Norms: Cultures have different approaches to work, such as individualism vs. collectivism, hierarchical vs. egalitarian structures, and high vs. low power distance. These differences can lead to conflicts and difficulties in collaborating and coordinating activities.
Resistance to Change: Culture plays a significant role in shaping individuals' attitudes toward change. Organizations often face resistance to change when cultural norms and traditions are disrupted, hindering the implementation of new processes or initiatives.Conflicting Values and Priorities: Cultural values and priorities vary across different societies. This can lead to conflicts and challenges when trying to align organizational goals and values with those of diverse employees or stakeholders.
Potential for Misunderstandings and Misinterpretations: Cultural differences can lead to misunderstandings and misinterpretations of actions, behaviors, and intentions. Different cultural contexts and perspectives may influence how certain actions or statements are perceived, potentially leading to conflicts or breakdowns in collaboration.
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a. Paid $72,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years b. Paid $360 cash per truck for the cost of their annual tune-ups. c. Paid $288 for the monthly cost of replacement filters on an air-conditioning system. d. Completed an addition to an office building for $405,000 cash. 1. Classify the above transactions as either a revenue expenditure or a capital expenditure. Transaction a b c d 2. Prepare the journal entries to record transactions a and d. View transaction list Journal entry worksheet < 1 2 Paid $72,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years. Note: Enter debits before credits. Transaction General Journal Debit Credit a Record entry Clear entry View general Journal Journal entry worksheet < 1 2 Completed an addition to an office building for $405,000 cash. Note: Enter debits before credits. Transaction General Journal Debit Credit d Record entry Clear entry View general Journal
1. The transactions can be classified as follows:a) Capital expenditure because it's related to a fixed asset.b) Revenue expenditure because it's related to regular expenses.c) Revenue expenditure because it's related to regular expenses.d) Capital expenditure because it's related to a fixed asset.
2. The journal entries to record transactions a and d are as follows:a. For the replacement of the compressor, the journal entry would be: Date Account Titles Debit Credit Xxxxxx Refrigeration System Asset 72,000 Cash 72,000 b. For the completion of the office building, the journal entry would be:Date Account Titles Debit Credit Xxxxxx Office Building Asset 405,000 Cash 405,000
The asset account is debited in both transactions because they are capital expenditures, which increase the value of the respective fixed assets, whereas the cash account is credited in both transactions because cash is being paid to carry out the transactions.
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Mr. Blah and Mrs. Bleh, are friends and they met at university when they were studying Business Law at Universty. They share a passion for virtual reality and virtual games. After completing their studies, they decided to start up a new business based on Mr. Blah's idea regarding a virtual reality without glasses. Mr. Blah's idea consists of a very powerful projector with a lot of speakers of different sizes and overall software that changes the video and the involving sound taking into account upon user's viewing. There is also a very incipient augmented virtual reality.
Mrs. Bleh, jointly with Mr. Blah, raised the necessary fund for kicking off the project. Mrs. Bleh's family and friends let her 100.000 euro meanwhile, Mr. Blah's family and friends let him 20.000 euro.
The first prototype had a cost of 110.000 euros and it took nearly 1 year of working. During this first year, Mrs. Bleh and Mr. Bla did not have a salary and they have been involved in this project, with other classmates, to whom they paid occasionally. Most of the funds have been applied to pay components and software developers.
Mrs. Bleh has contacted a Japanese company which is very interested to buy the new projector. The Japanese company's director has come to Barcelona to have his own experience with the prototype and finally, he has ordered 6 projectors.
Questions:
Who is the projector's owner?
Shall you recommend them to incorporate a new company?
Do the classmates have a commercial, labour, or friend relationship with Mrs. Bleh and Mr. Blah or their company?
What should be the minimum price for each projector?
You should choose a trademark for this projector. I recommend consulting online if the chosen trademark is available.
You should draft a budget and a business plan.
Do you think the projector is subject to a patent or any intellectual property? It is enough if you list the object and the protection, for example, Speakers - patent although the speakers already have a patent.
The projector's owner is Mr. Blah.
Mr. Blah, as the originator of the idea for the virtual reality without glasses and the powerful projector, holds the ownership rights to the projector. While Mrs. Bleh played a crucial role in raising funds and supporting the project, the concept and invention belong to Mr. Blah. Therefore, he is the rightful owner of the projector.
Mrs. Bleh and Mr. Blah should consider incorporating a new company for their business venture. Establishing a formal business entity, such as a corporation or a limited liability company (LLC), can provide various benefits, including legal protection, separation of personal and business assets, and easier access to financing. Incorporation also lends credibility and professionalism to the business, which can be advantageous when dealing with potential partners or customers.
The classmates involved in the project likely have a combination of commercial, labor, and friend relationships with Mrs. Bleh, Mr. Blah, and their company. While they may have been classmates and friends initially, their involvement in the project creates a commercial relationship where they provide services or contribute to the development of the prototype. The absence of regular salaries suggests a labor relationship, where they work on the project without immediate financial compensation.
Determining the minimum price for each projector requires careful consideration of various factors. These include the cost of production, the value proposition offered by the product, market demand, competition, and desired profit margins. A thorough analysis of these elements, along with pricing strategies, would help in determining an appropriate minimum price that covers costs and generates a reasonable profit for the company.
As for choosing a trademark for the projector, it is recommended to consult online databases to ensure the availability of the desired trademark. Conducting a comprehensive search will help identify any existing trademarks that could potentially create conflicts or confusion in the market. Once a suitable and available trademark is found, it can be registered to protect the brand identity and prevent unauthorized use by others.
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The following figure shows the marginal cost curve, average total cost curve, average variable cost curve, and marginal revenue curve for a firm for different levels of output.
Should this firm shut down in the short run?
What happen to this market in the long run? Explain the long-run equilibrium for this firm.
The price is above the minimum of the ATC curve, new firms will enter the market until the price falls to the minimum of the ATC curve.
The firm should shut down in the short run if the price is less than the minimum of the AVC (average variable cost) curve. If the price is greater than or equal to the minimum of the AVC curve but less than the minimum of the ATC (average total cost) curve, then the firm should continue to operate in the short run but will incur losses. However, if the price is greater than or equal to the minimum of the ATC curve, then the firm will earn profits.
In the long run, firms can enter or exit the market depending on their profitability. If firms are earning profits, new firms will enter the market, increasing supply and causing the price to fall until profits are zero.
Conversely, if firms are experiencing losses, firms will exit the market, decreasing supply and causing the price to rise until losses are zero. In the long run, the equilibrium price will be equal to the minimum of the ATC curve, and firms will earn zero economic profits. The long-run equilibrium for this firm is the point where the price equals the minimum of the ATC curve.
At this point, the firm will earn zero economic profits. If the price is below the minimum of the ATC curve, the firm will exit the market in the long run. If the price is above the minimum of the ATC curve, new firms will enter the market until the price falls to the minimum of the ATC curve.
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An Australian firm wants to set up a car assembly plant in Zambia. The Zambian government may insist on at least 10% of the vehicle components being manufactured locally. The idea is to support domestic industries. Explain the type of barrier in international business that the above example pertains to.
The type of barrier in international business that the given example pertains to is Trade Barriers.
Trade barriers are obstacles that impede the flow of goods and services between two countries. These barriers are generally imposed by one country to protect its domestic industries and restrict the free flow of goods and services into its economy.
Australia wants to set up a car assembly plant in Zambia. However, the Zambian government may insist on at least 10% of the vehicle components being manufactured locally. The government has imposed this restriction in order to protect its domestic industries. This type of trade barrier is known as a local content requirement or local content law.
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Problem 2-7A Preparing and posting journal entries; preparing a trial balance LO3, 4, 1 Elizabeth Wong has strong problem-solving skills and loves to work with people. After becoming a Certified Hu Professional (CHRP) and working for several companies, she opened her own business, HR Solutions. She com transactions during May 2020: May 1 Invested $70,000 in cash and office equipment that had a fair value of $43,000 in the business. 1 Prepaid $12,900 cash for three months' rent for an office. Book 2 Made credit purchases of office equipment for $21,500 and office supplies for $4,300. 6 Completed a report on hiring solutions for a client and collected $7,500 cash. Ask 9 Completed a $15,500 project implementing a training program for a client, who will pay within 30 days. Print 10 Paid half of the account payable created on May 2. 19 Paid $7,000 cash for the annual premium on an insurance policy. 22 Received $12,300 as partial payment for the work completed on May 9. 25 Developed a performance review process for another client for $4,780 on credit. 25 Paid wages for May totalling $31,500. 31 Withdrew $4,500 cash from the business to take a trip to Paris in June. 31 Purchased $1,350 of additional office supplies on credit. 31 Paid $1,350 for the month's utility bill.
The equipment of $21,500 is not added to the trial balance since it is already included in the Office Equipment account. The prepaid rent of $12,900 is included in the Prepaid Rent account.
The journal entries are given below:May 1: Cash & Office Equipment Dr. $70,000; Office Equipment Cr. $43,000; Cash Cr. $27,000May 1: Prepaid Rent Dr. $12,900; Cash Cr. $12,900May 2: Office Equipment Dr. $21,500; Office Supplies Dr. $4,300; Accounts Payable Cr. $25,800May 6: Cash Dr. $7,500; Revenue Cr. $7,500May 9: Accounts Receivable Dr. $15,500; Revenue Cr. $15,500May 10: Accounts Payable Dr. $12,650; Cash Cr. $12,650May 19: Prepaid Insurance Dr. $7,000; Cash Cr. $7,000May 22: Cash Dr. $12,300; Accounts Receivable Cr. $12,300May 25: Office Supplies Dr. $4,780; Accounts Payable Cr. $4,780May 25: Wages Expense Dr. $31,500; Cash Cr. $31,500May 31: Drawing Dr. $4,500; Cash Cr. $4,500May 31: Office Supplies Dr. $1,350; Accounts Payable Cr. $1,350May 31: Utilities Expense Dr. $1,350; Cash Cr. $1,350The trial balance should be calculated by listing all the accounts along with their balances. If the debits and credits are equal, then the trial balance is correct.The trial balance for HR Solutions is given below:HR SolutionsTrial BalanceMay 31, 2020Debit CreditCash $51,050Accounts Receivable $3,200Office Equipment $21,500Prepaid Rent $12,900Office Supplies $3,730Prepaid Insurance $7,000Accounts Payable $10,930Wages Expense $31,500 Utilities Expense $1,350Drawing $4,500Service Revenue $23,000Total $98,580 $98,580Note: The equipment of $21,500 is not added to the trial balance since it is already included in the Office Equipment account. The prepaid rent of $12,900 is included in the Prepaid Rent account.
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Assume the utility function of a representative consumer is U (X,Y)=min(X,Y). The consumer has $10 and Px =$1 and Py=$1. Find the optimal consumption bundle. Assume now price of X increases to $3. Fi,nd the new optimal consumption bundle. What is the total effect. Decompose the total effect into income effect and substitution effect. Draw a graph to accompany your answers and also quantify your answers.
The optimal consumption bundle for a representative consumer with a utility function of U(X,Y) = min(X,Y), given $10, Px = $1, and Py = $1, is (X=5, Y=5). When the price of good X increases to $3, the new optimal consumption bundle is (X=3.33, Y=3.33). The total effect can be decomposed into an income effect and a substitution effect.
Initially, with $10, Px = $1, and Py = $1, the consumer maximizes utility by equating the marginal utility of X to the marginal utility of Y. Since the utility function is U(X,Y) = min(X,Y), the consumer spends $5 on each good, resulting in an optimal consumption bundle of (X=5, Y=5).
When the price of good X increases to $3, the consumer's purchasing power for X is reduced. In order to maximize utility, the consumer now spends more on good Y relative to X. Using the new price ratio and the same total budget of $10, the consumer's optimal consumption bundle becomes (X=3.33, Y=3.33).
The total effect can be decomposed into an income effect and a substitution effect. The income effect measures the change in consumption due to the change in purchasing power caused by the price increase. In this case, the income effect is negative, as the consumer's purchasing power for X has decreased, leading to a reduction in consumption of X.
The substitution effect measures the change in consumption due to the relative price change between X and Y. As the price of X has increased, it has become relatively more expensive compared to Y. The substitution effect encourages the consumer to reduce consumption of X and increase consumption of Y.
To illustrate this, a graph can be drawn with X on the horizontal axis and Y on the vertical axis. The initial budget constraint is a straight line with a slope of 1, representing the initial price ratio. The optimal consumption bundle lies at the point where the budget constraint is tangent to the highest possible indifference curve. When the price of X increases, the budget constraint becomes steeper, reflecting the new price ratio. The new optimal consumption bundle is found at the tangent point between the steeper budget constraint and the highest attainable indifference curve. Quantitatively, the new optimal consumption bundle is (X=3.33, Y=3.33), reflecting the income and substitution effects.
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Question 1
Compare and contrast the New Institutional Economics and the New
Economic Geography explanations of long-run growth.（Apply knowledge
of the global economy）
The New Institutional Economics and the New Economic Geography provide different explanations for long-run growth. The New Institutional Economics focuses on the role of institutions, such as property rights and contracts, in shaping economic behavior and fostering growth. On the other hand, the New Economic Geography emphasizes spatial factors, such as agglomeration effects and trade patterns, in driving economic growth.
The New Institutional Economics (NIE) argues that institutions play a crucial role in determining economic outcomes and long-run growth. Institutions, such as legal systems, property rights, and contract enforcement, provide a framework that influences individual behavior and promotes economic efficiency. NIE emphasizes the importance of well-functioning institutions in reducing transaction costs, facilitating investment, and promoting innovation.
In contrast, the New Economic Geography (NEG) focuses on spatial factors and agglomeration effects. NEG suggests that geographic concentration of economic activities and industries can lead to productivity gains and economic growth. Agglomeration economies arise from factors like knowledge spillovers, labor market pooling, and specialization, which enhance productivity and innovation. NEG also considers trade patterns, transportation costs, and market access as crucial determinants of economic growth.
While both theories contribute to our understanding of long-run growth, they have distinct emphases. NIE emphasizes the role of institutions in fostering growth, while NEG focuses on spatial factors and agglomeration effects. However, it is important to note that these theories are not mutually exclusive, and elements from both can be relevant in explaining long-run growth in different contexts.
The New Institutional Economics and the New Economic Geography provide different perspectives on long-run growth. While the New Institutional Economics highlights the importance of institutions, the New Economic Geography emphasizes spatial factors and agglomeration effects. Understanding the interplay between institutions, spatial factors, and other determinants of growth is crucial for comprehending the complexities of long-run economic development in the global economy.
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