Answer:
A) 10.32%
Explanation:
Calculation for the expected return on Bo’s complete portfolio
Using this formula
Expected return =(Proportion of complete portfolio in P×E(Rp))+Proportion of complete portfolio in T bills×Tbill rate)
Let plug in the formula
Expected return=(80%×12%) + (20%×3.60%)
Expected return=0.096+0.0072
Expected return=0.1032×100
Expected return=10.32%
Therefore the expected return on Bo’s complete portfolio will be 10.32%
Phipps Company borrowed $25,000 cash on October 1, 2010, and signed a six-month, 8% interest- bearing note payable with interest payable at maturity. The amount of interest expense to be reported during 2011 is which of the following?
a) $250.
b) $300.
c) $500.
d) $750.
Answer:
c) $500.
Explanation:
The computation of the interest expense to be recognized for the year 2011 is shown below;
= Principal × rate of interest × number of months ÷ (total number of months in a year)
= $25,000 × 8% × (3 months ÷ 12 months)
= $500
The 3 months is taken from October 1 to December 31
Hence, the correct option is c. $500
In 2017, if the PPP per capita of China was $16,760 and the PPP per capita of the United States was $60,200, this means that the
Answer:
e. cost of living was lower in China.
Explanation:
Here are the options to this question
. GNI per capita was greater in China.
b. standard of living in China was better.
c .annual average GDP growth rate was lower in China.
d. percent of goods and services consumed in the United States was lower.
e. cost of living was lower in China.
PPP per capita = purchasing power parity / population.
PPP per capita gives the price of a basket of goods per capita.
A lower PPP per capita compared to another country means that price is lower in that country and that the cost of living is lower
‘An enterprise may capture value through either innovation leadership or innovation followership’. Discuss this statement with the help of one example each for innovation leadership and innovation followership.
Answer with Explanation:
Innovation Leadership is a technique through which the leaders influence the behaviors of the employees by telling them about the innovative solutions how its achievement can be fruitful to the company. The innovative followers bring creative and innovative ideas at desk so that the problems are timely and effectively solved or the product or service is delivered with more differentiated features. The relationship is more inclined to solving the problems by opting to modern and distinctive solutions that will bring value to the company. In simple words its all about "Modern problems require modern solutions".
Innovation leader in the case of Apple Incorporation would be Steve Jobs who brought countless innovation which today we experience while using computers, hearing music, using graphical user interface, etc. All these was part of his vision. If we consider his vision statement which is as under:
“To make a contribution to the world by making tools for the mind that advance humankind.” Steve Jobs
We can see that the innovation lies in the heart of the vision statement. So no doubt he revolutionized the whole of the world and his innovation fellowership were influenced by this behavior which let Apple to accomplish innovation that advanced humankind by the introduction of graphical user interface, better secure computers, mouse, portable music players, Iphones, iPods, Macbook, etc,.
The reduction of on the job injuries and illnesses would benefit employers, because they would
a. be able to hire their best friends
b. gain back time lost by employees
sell more products in less time
d. stop paying bonuses
C.
The reduction of on the job injuries and illnesses would benefit employers because they would gain back time lost by employees. Option B is correct.
What are the common on the job injuries & illnesses?1. Slips, trips, and falls.
2. Overexertion and muscle strains.
3. Struck by workers, equipment, or falling objects.
4. Crashes or collisions.
5. Exposure to harmful substances or environments.
6. Fire and explosions.
7. Violence and other injuries by persons or animals.
With rise in level of workplace safety and state-of-art health measure undertaken by the employers improve the situation against on the job injuries and consecutively lead to provide more productive time to get better results & achieving goals.
Therefore gain back time give appropriate results.
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A(n) ________________ is a number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument.
Answer: notional
Explanation:
A notional amount also sometimes referred to as the face amount is a number of currency units, shares, bushels, pounds, or other units specified in a derivative instrument.
The effective notional amount had to do with the notional amount that has already been stated and further adjusted when the leverage factor is considered.
what percentage of the total variation in candy bar sales is explained by prices? a. 88.54% b. 48.19% c. 78.39% d. 100%
Answer:
The correct option is c. 78.39%.
Explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question. See the attached pdf file for the complete question.
The explanation to the answer is now given as follows:
In regression model, R-squared (R^2) is the statistical measure that shows the percentage of the total variation a dependent variable that is explained by an independent variable(s).
From the question, the candy bar sales is the dependent variable while the Price is the independent variable.
Therefore, the R^2 is calculated using the RSQ function in the Microsoft excel.
Note: See the attached excel file for the calculation of the R^2 using the RSQ function.
For the data in the excel, the R^2 is calculated by simply typing =RSQ(C3:C8,B3:B8) anywhere in the attached excel file. This gives 0.7839. Converting this to a percentage gives 78.39%.
Therefore, percentage of the total variation in candy bar sales explained by prices is 78.39%. The correct option is c. 78.39%.
What limits the quantity sold with a price floor: supply or demand?
Answer:
Demand
Explanation:
If no one is buying the product naturally it the limits the quantity sold.
Suppose the economy is operating at a point where output is less than the natural level of output. Which of the following statements is correct given this information?
a) the price level is less than the expected price level.
b) the unemployment rate is less than the natural unemployment rate.
c) the price level will be higher next period than this period.
d) all of the above.
e) none of the above.
Answer: a) the price level is less than the expected price level.
Explanation:
When the actual output in an economy is lower then the natural output it is called a Contractionary Gap and the price level will be lower.
This is because the Short Run Aggregate Supply Curve and the Demand curve will intersect at a lesser quantity which will equate to a lower price as well because the economy is producing less and the people are demanding less as well so the point at which they meet will be a lesser price.
If the average price of gasoline is $3.25 per gallon in your town, and gasoline is perfectly competitive market, explain what might happen and why in your town if the price of gas dropped to $0.50 overnight. What if it jumped up to $10 per gallon overnight?
a. If the price of gasoline were to suddenly drop overnight to $0.50, the quantity of gasoline bought and sold would
Answers: (stay the same, decrease, or increase)
.
b. If the price of gasoline were to suddenly jump to $10 per gallon, the quantity of gasoline bought and sold would
Answers: (stay the same, decrease, increase)
.
Given :
Average price of gasoline $3.25 per gallon in a town .
To Find :
The impact if the price of gas dropped to $0.50 overnight and if it jumped up to $10 per gallon .
Solution :
We know , according to law of demand :
Demand is in inversely proportional to the price of the product if all other constraint remains constant .
a )
If the price of gasoline were to suddenly drop overnight to $0.50 , so the price of product will decrease and by law of demand , the demand will increase which cause quantity of gasoline bought and sold increase .
b )
If the price of gasoline were to suddenly jump to $10 per gallon , it cause in increase in price , which will decrease the quantity of gasoline bought and sold .
Hence , this is the required solution .
When the average price of gasoline is $3.25 per gallon in a town.
Then we Find: When The impact if the price of gas dropped to $0.50 overnight and also if it jumped up to $10 per gallon.
Law of demandWe know, according to the law of demand :
Demand is inversely proportional to the price of the product if all other constraint remains constant.
a ) When If the price of gasoline were to suddenly drop overnight to $0.50 so that the price of the product will decrease and also by the law of demand when the demand will increase which cause the quantity of gasoline bought and also sold increase.
b ) when If the price of gasoline were to suddenly jump to $10 per gallon, it cause in price increase, which will decrease the quantity of gasoline bought and also sold.
Hence proof, this is the required solution.
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Randy’s Pizza delivers pizzas to dormitories and apartments near a major state university. The company's annual fixed costs are $58,800. The sales price averages $11, and it costs the firm $4 to make and deliver each pizza.
A. How many pizzas must Randy's sell to break even?
B. How many pizzas must the company sell to earn a target profit of $54,000?
C. If budgeted sales total 9,900 pizzas, how much is the company's safety margin in dollars?
D. Tony's assistant manager, an accounting major, has suggested that the firm should try to increase the contribution margin per pizza. Explain the meaning of "contribution margin" in layman's terms.
Answer:
Please see answers below
Explanation:
A. For break even point
= fixed expenses - Contribution margin per unit
Where,
Contribution margin per unit = Sales per unit - Variable cost per unit
= $11 - $4
= $7
Therefore,
Break even points in unit = $58,800 ÷ $7
= 8,400 pizzas
B. Target profit
The break even point = Fixed costs expenses + Target profit / Contribution margin per unit
= ($58,800 + $54,000) / $7
= $112,800 / $7
= 16,114 pizzas
C. Margin of safety in dollars
= (Total sales - Break even in sales) * Selling price per unit
= ( 9,900 - 8,400 ) * $11
= 1,500 * $11
= $16,500
D. Contribution margin in lay man's term.
Contribution margin is when a firm makes or produces a product and then sold it, the difference that is left after deducting variable costs(costs associated with the sales like cost of raw materials used in producing the product) from the the sales of such product is the contribution margin.
_____________ is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months.
Answer:
"A banker's acceptance" is a promise of future payment issued by a firm and guaranteed by a bank that is used to finance international trade with typical maturities ranging from one to six months.
Explanation:
A banker's acceptance is a characteristic short-term loan or rather a fixed-rate loan used for international trade. It is safer, easier, gives the seller assurance of getting paid by the buyer's bank. The bank is obligated to pay the party offering service, in this case, "the exporter" at a later time. The buyer's bank after conducting checks to ascertain how creditworthy the buyer who approached them might be, finally they agree to pay the seller with the buyer's account debited as this works as additional security for both parties. Banker's acceptance is considered investments, one of the reasons is that it can be held until maturity or sold at a discount before maturity.
The uses of Free cash flow include:_______. a. pay dividends.b. re-purchase stock.c. pay taxes.d. a. and b. only.
e. all the above.
Answer: d. a. and b. only.
Explanation:
Free Cashflow to a company is cash that is available to the company after it has finished paying off all expenses for the period. This money can then be used to pay out dividends or engage in stock repurchasing.
Taxes are not paid from Free cash as they are an income expense. Free cash is only acquired after the taxes have been paid off.
At a rate of 6.5%, what is the future value of the following cash flow stream?
Year 0 1 2 3 4
CFs: $0 $75 $225 $0 $300
a. $582.83.
b. $553.69.
c. $613.51.
d. $645.80.
e. $526.01.
Answer:
Total future value= $645.8
Explanation:
Giving the following information:
Year 0 1 2 3 4
CFs: $0 $75 $225 $0 $300
Interest rate= 6.5%
To calculate the future value, we need to use the following formula on each cash flow:
FV= PV*(1+i)^n
Cf1= 75*1.065^3= 90.60
Cf2= 225*1.065^2= 255.20
Cf3= 0
Cf4= 300
Total future value= $645.8
The futures price of gold is $1,000. Futures contracts are for 100 ounces of gold, and the margin requirement is $3,000 a contract. The maintenance market requirement is $1,500. A speculator expects the price of gold to rise and enters into a contract to buy gold.
a. How much must the speculator initially remit?
b. If the futures price of gold rises to $1,005, what is the profit and return on the position?
c. If the futures price of gold declines to $998, what is the loss on the position?
d. If the futures price declines to $984, what must the speculator do?
e. If the futures price continues to decline to $982, how much does the speculator have in the account?
Answer:
a. The initial remittance is the same as the initial margin requirement of $3,000.
b. The profit is;
= 100 ounces * ( 1,005 - 1,000)
= $500
Return is;
= Profit/ Margin
= 500/3,000
= 16.67%
c. The loss is;
= 100 * ( 1,000 - 998)
= -$200
d. If the futures price declines to $984, what must the speculator do?
Depends on if the maintenance requirement is still below the balance.
= 3,000 - 100 * (1,000 - 984)
= $1,400
This is below the maintenance margin of $1,500 and so the speculator will have to deposit an amount that will take it back to the original margin requirement.
= 3,000 - 1,400
= $1,600
Speculator should deposit $1,600.
e. = 3,000 - 100 (1,000 - 982)
= $1,200
Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $41,000 and a remaining useful life of five years, at which time its salvage value will be zero. It has a current market value of $51,000. Variable manufacturing costs are $33,800 per year for this machine. Information on two alternative replacement machines follows.
Alternative A Alternative B
Cost $ 115,000 $ 114,000
Variable manufacturing costs per year 22,800 10,800
1. Calculate the total change in net income if Alternative A is adopted. (Cash outflows should be indicated by a minus sign.)
2. Calculate the total change in net income if Alternative B is adopted. (Cash outflows should be indicated by a minus sign.)
Answer:
assuming a 5 year period:
1) if alternative A is adopted:
initial cash flow = $115,000 - $51,000 = -$64,000
savings per year = $33,800 - $22,800 = $11,000
$11,000 x 5 years = $55,000
net income will decrease by ($9,000)
2) if alternative B is adopted:
initial cash flow = $114,000 - $51,000 = -$63,000
savings per year = $33,800 - $10,800 = $23,000
$23,000 x 5 years = $115,000
net income will increase by $52,000
Undertaking initiatives that help an organization assume an enhanced citizenship role aligns with the human resource management goal of:
Answer:
complying with legal and social obligations
Explanation:
Every organisation runs its business to achieve the objectives of the business.
Further, the organisation seeks to work in an environment which is legally and socially free from any obligations.
The organisation which assumes too have greater citizenship roles automatically aligns the human resource management with the goal of complying with the legal and social obligations.
As with greater citizenship roles there comes greater diversity which helps to ensure the legal and social obligations.
Why do we subtract depreciation in the calculation of EBIAT if we are going to add it back as the next step of the Free Cash Flow formula?
Answer: Depreciation is tax deductible
Explanation:
Depreciation on assets is recognized by tax authorities as an expense that a business actually incurs so when the income statement is calculated, depreciation needs to be removed as the expense that it is so that taxes can be calculated on the profit.
Depreciation however, does not take actual cash from the company i.e the company does not actually pay anyone cash for depreciation like most other expenses. It needs therefore to be added back to the Free Cash Flow because the FCF deals with how much actual cash the company has which is something that Depreciation being a non-cash expense did not reduce.
The reason why we subtract depreciation in the calculation of EBIAT if we are going to add it back as the next step of the Free Cash Flow formula is because:
Depreciation is tax deductible
According to the given question, we can see that we need to show why it is necessary to subtract depreciation when calculating the EBIAT in the Free Cash Flow formula.
As a result of this, we can see that when an asset depreciates, then according to the government, it is a taxable commodity which makes it important to remove it from the income statement so that it would be calculated together instead as a separate part.
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If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock's expected dividend yield for the coming year?
Answer:
the expected dividend yield is 4.81%
Explanation:
The computation of the stock expected dividend yield is shown belo:
Stock expected dividend yield is
= Dividend ÷ Price
where,
Dividend is $1.25
And, the price is $26
Now place these values to the above formula
So, the expected dividend yield is
= $1.25 ÷ $26
= 4.81%
Hence the expected dividend yield is 4.81%
Identify whether each of the following would be reported as an operating, investing, or financing activity on the statement of cash flows:
1.
A. Repurchase of common stock
B. Cash received from customers
C. Payment of accounts payable
D. Retirement of bonds payable
E. Purchase of equipment
F. Purchase of inventory for cash
2.
A. Purchase of investments
B. Disposal of equipment
C. Payment for selling expenses
D. Collection of accounts receivable
E. Cash sales
F. Issuance of bonds payable
Answer and Explanation:
The classification is as follows
1.
A. financing activity = Cash outflow as cash is gone
B. Operating activity = Cash inflow as cash is received
C. Operating activity = Cash outflow as cash is gone
D. Financing activity = Cash outflow as cash is gone
E. Investing activity = Cash outflow as cash is gone
2.
A. Investing activity = Cash outflow as cash is gone
B, Investing activity = Cash inflow as cash is received
C. Operating activity = Cash outflow as cash is gone
D. Operating activity = Cash inflow as cash is received
E. Operating activity = Cash inflow as cash is received
F.financing activity = Cash inflow as cash is received
A distinguishing feature of a quasi-experimental study is that it:__________.
Answer:
Explanation:
A distinguishing feature of a quasi- experimental study is that it involves manipulating variables of interest but not controlling additional variables that might affect results. Hence, Quasi-experimental research involves the manipulation of an independent variable without the random assignment of participants to conditions or orders of conditions. Among the important types are nonequivalent groups designs, pretest-post-test, and interrupted time-series designs.
A distinguishing feature of a quasi-experimental study is that it involves manipulating variables of interest but not controlling additional variables that might affect results.
Quasi-experimental studies try to assess treatments but do not employ randomization. Quasi-experiments, like randomized trials, seek to show causation between an intervention and a result.
In an experimental research study, participants are randomly allocated to either the treatment (product users) or control (product non-users) groups.
Participants in quasi-experimental research are not allocated to treatment or control groups at random for comparative purposes.
Therefore, Quasi-experimental research is distinguished by the fact that it includes changing variables of interest but without controlling additional factors that may affect outcomes.
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Northwest Lumber had a profit margin of 5.25%, a total assets turnover of 1.5, and an equity multiplier of 1.8. What was the firm's ROE
Answer:
14.18%
Explanation:
Northwest lumber has a profit margin of 5.25%
The total assets turnover is 1.5
The equity multiplier is 1.8
Therefore the ROE can be calculated as follows
= 5.25 × 1.5 × 1.8
= 14.18%
Hence the ROE is 14.18%
A 5.5%, 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of:_____.
A) 8.2000.
B) 10.75%.
C) 11.40%.
D) 4.82%.
Answer:
B) 10.75%.
Explanation:
Marginal tax bracket = 33%
The 20 year old bond is being priced to yield 7.2%
We are required to find the equivalent taxable yield that this bond is going to offer.
Equivalent taxable yield =
Yield/(1-tax%)
= 7.2%/(1-33%)
= 10.75%
this bond would offer an equivalent taxable yield of 10.75%
Your Competitive Intelligence team is predicting that the Chester Company will invest in adding capacity to their Cell product this year. Assume Chester's product Cell invests in increasing its capacity by 10% this year. Because of this new information, your company anticipates all other products in the Core segment will increase their capacity by the same amount. How much can the industry produce in the Core segment the next year? Consider only products primarily in the Core segment last year. Ignore current inventories. Figures in thousands (000). Select: 1Save Answer 13,728 5,040 8,359 7,381 4,219 9,559 8,581
Question Completion:
Figures in thousands (000):
Product Segment Capacity Next Round
Dug Core 1200
Dune Core 1450
Beetle Core 1040
Bat Core 1050
New Core 100
Adam Core 1200
Answer:
Chester Company
Competitive Intelligence Report:
Based on the increased 10% capacity, the industry can produce 6,644 units.
Explanation:
a) Data and Calculations:
Product Segment Capacity Next Round Increased Capacity (1.1)
Dug Core 1,200 1,320
Dune Core 1,450 1,595
Beetle Core 1,040 1,144
Bat Core 1,050 1,155
New Core 100 110
Adam Core 1,200 1,320
Total 6,040 6,644
b) Each of the core segment products can be increased by the increased capacity factor of 1.10 (1 + i), where "i" is the rate of capacity increase. Alternatively, the total capacity in the current period can be increased by the increased capacity factor. Either way, produces the same result of an increased capacity of 6,644 units that the industry can produce. The result also shows that the options provided in the question are not correct. They must have been based on other assumptions.
Jaye Company purchased a new building by signing a note for . The entry to record the transaction is:
Answer:
b. building 28,000
notes payable 28,000
Explanation:
jaye company purchased a new building by signing a note for $28,000. the entry to record the transaction is:
a. building 28,000
cash 28,000
b. building 28,000
notes payable 28,000
c. note payable 28,000
cash 28,000
d. cash 28,000
note payable 28,000
Jaye's company is signing a note of 28,000 and purchasing a building of 28,000
The entry to record Jaye company's transaction is building 28,000, notes payable 28,000
The transaction will not be recorded in
Building:28,000, cash:28,000.
Note payable:28,00, cash:28,000
Cash:28,000, note payable:28,000
Therefore the correct answer is
b. building 28,000
notes payable 28,000
According to your text, the accounting profession has adopted a modified all-inclusive concept to income reporting. Using this approach companies report unusual or irregular items as a part of net income. What are these items and are they reported separately on the income statement
Answer:
The unusual or irregular items are:
Gains or losses from the sales of assetsGains or losses from the restructuring of debtsAsset impairment gains or lossesGains or losses from discontinued operationsGains or losses from the early pay-off of Bonds/DebtsGains or losses arising from Merger and Acquisition or divestitureGains or losses arising from natural disaster damagesGains or losses from changes in accounting policiesLitigation or Insurance settlements and proceedsThese items are reported separately on the income statement. They are not included in the operating income as they do not form part of the core operations of businesses.
Explanation:
The modified all-inclusive concept or comprehensive income concept attempts to report all gains or losses including nonrecurring, unusual, or irregular items as part of the net income in order to ensure more informative and less subjective financial reporting. It is the opposite of the Current operating performance concept which takes nonrecurring, irregular, or unusual items straight to the Equity in the balance sheet. However, with the modified all-inclusive concept, these items are usually reported separately on the income statement so that users of financial statements could decide whether to include or exclude them in their analysis.
In terms of minimizing tax liability, how would estate planning differ from a partnership to a corporation?
Answer:
The nature of a partnership is the major reason why many businessmen opt for partnership. Businesses of partnership are not taxable since the organizations consistently permit livelihoods and findings to get through the proprietors before any tax collection is finished. Secondly, when an accomplice bites the dust, under default guidelines, the association is broken down. In any case, if there were organization understandings, these understandings and the guidelines administering the association are followed which can permit the living accomplice to close the business, convey assets, and the tax collection trouble is given to the accomplices alive.
Then again, partnerships offer an open door for giving out lifetime business intrigue endowments. Hence, a parent who wishes to blessing their posterity with business endowments can move a few advantages for them. As Kaya and Vereshchagina state, this fills in as a method of decreasing the duty obligation since their youngsters as viewed as on the lower charge section subsequently paying lower charge rates. Essentially, a parent who does this likewise begins to pay lesser duty since they fall under a lower charge classification. A thing significant is that any individual who gets a lifetime business blessing from a company turns into an investor who doesn't have power over the business the executives. Then again, an individual who gets from an organization turns into an accomplice and an operator of the association also with the option to control and deal with the business.
Another distinction is that an partnership can utilize trusts to diminish their tax liability. Nonetheless, there is a distinction between the two. Under an organization, there exists no restriction on the quantity of trust accomplices permitted to possess a home. In enterprises, there is an impediment on the sort of trust they can have. In this way, an organization is esteemed to be more adaptable contrasted with companies.
You want to purchase a motorcycle 4 years from now, and you plan to save $3,500 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today
Answer:
You will have $16,111.99
Explanation:
a) Data and Calculations:
Annual savings $3,500
Years = 4
Interest rate = 5.7%
Future value using finance calculator:
FV (Future Value) $16,111.99
PV (Present Value) $12,907.71
N (Number of Periods) 4.000
I/Y (Interest Rate) 5.700%
PMT (Periodic Payment) $3,500.00
Starting Investment $0.00
Total Principal $14,000.00
Total Interest $2,111.99
b) Your annual savings of $3,500 with 4 deposits will have a future value of $16,111.99 compounded at 5.7% for 4 years with a total principal of $14,000 ($3,500 * 4).
Would a macroeconomist be interested in how individual consumers respond to an increase in taxes on gasoline?
Answer:
Yes, a macroeconomist would be interested in how individual consumers respond to an increase in taxes on gasoline
Explanation:
The responses registered knowingly or unknowingly by the individuals affected by changes in certain taxes are largely identical to each other. This is because the majority of people who are anyway affected by such changes belong to the middle class. It is from the responses of multiple individuals, the mood of the entire society in line with the changes in the taxes can be speculated. Most of the time, it is seen that an unprecedented increase in the tax levied over a common commodity affects the middle class negatively. Whereas, on the other hand, a decrease in the same provides them relief to some extent. Hence, the responses of individuals collectively form the response of an entire society that is subjected to changes in taxes, clearly attracting the attention of a macroeconomist.Which of Michael Porter's generic strategies did Renault primarily pursue after the economic crisis?
Answer: Overall cost leadership
Explanation:
Michael Porter's generic strategy that Renault primarily pursued after the economic crisis was overall cost leadership.
This can be noticed when Renault had to reduce its cost and hance started producing cars that were low cost and has result led to sm increase in the profit that was made by Renault.
Poseidon Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Poseidon uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:
Direct materials: 3 pounds per unit; $3 per pound
Direct labor: 5 hours per unit; $15 per hour
Poseidon produced 5000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the direct labor cost variance was $8000 F. Which of the following is a logical explanation for this variance?
A. The company paid a lower cost for the direct materials than allowed by the standards.
B. The company used a lower quantity of direct materials than allowed by the standards.
C. The company paid a lower cost per hour for labor than allowed by the standards.
D. The company used fewer labor hours than allowed by the standards.
Answer:
C. The company paid a lower cost per hour for labor than allowed by the standards.
Explanation:
direct labor rate/price variance = (AR - SR) x AH
Any favorable variance will result from a lower actual rate than the standard rate. Any difference in the actual number of hours will result in a variance of labor efficiency.
In this case, assuming that actual hours were the same as standard hours, 5,000 x 5 = 25,000 direct labor hours were employed. This means that the actual rate was:
-8,000 = (AR - 15) x 25,000
AR - 15 = -8,000 / 25,000 = 0.32
AR = $14.68