Reference no: EM13198705

Do-It-Yourself, Inc. sells budget-priced stereo receivers, in both kit and fully-assembled forms. Customers who assemble their own receivers benefit from the lower kit price of $100 per receiver. "Full-service" customers enjoy the luxury of an assembled receiver, but pay a higher price of $150 per receiver. Both kit and fully assembled receiver prices are stable. The company has observed the following relation between the numbers of assembly workers employed per day and assembled receiver output:
Number of Workers per day Finished Receivers
0 0
1 8
2 14
3 18
4 20
5 21
A. Construct a table showing the net marginal revenue product derived from assembly worker employment.
B. How many assemblers would Do-It-Yourself employ at a daily wage rate of $120?
C. What is the highest daily wage rate Do-It-Yourself would pay to hire four assemblers per day?

Incremental Costs. Fluff Rite, Inc., manufactures stove top popcorn poppers that it sells to distributors, who then customize and distribute the products to retailers as house-brand poppers. The yearly volume of output is 100,000 units. The selling price and cost per unit are shown below:

Selling price $20
Costs:
Direct material $2
Direct labor 5
Variable overhead 2
Variable selling expenses 3
Fixed selling expenses 1 13
Unit profit before tax $ 7

Management is evaluating the alternative of performing the necessary customizing to allow Fluff Rite to sell its output directly to retailers for $26 per unit. Although no added investment is required in productive facilities, additional processing costs are estimated as:
Direct labor $2 per unit
Variable overhead $1 per unit
Variable selling expenses $1 per unit
Fixed selling expenses $50,000 per year

A. Calculate the incremental profit Fluff Rite would earn by customizing its poppers and marketing directly to retailers.

Opportunity Costs. Two graduate business students are considering opening a full-service car wash in Greenville, North Carolina, after graduation. This is an alternative to employment with a local manufacturing firm where they would each earn $70,000 per year. A fully equipped facility can be leased at a cost of $35,000 for the year. Additional projected costs are $15,000 for overhead, and $5 per automobile for materials and supplies. Full detail automobile cleaning would be priced at $25.
A. What is the accounting cost function for this business?
B. What is the economic cost function for this business?
C. What is the economic breakeven number of units for this operation? (Assume a $25 price and ignore interest costs associated with the timing of the lease payments.)

Profit Contribution Analysis. Kathy's Bakery is a local full-service bakery in Omaha, Nebraska. Kathy sells loaves of wheat bread for $3 a loaf. Of this amount, $1.50 is profit contribution. She is considering an attempt to differentiate her shop from several other competitors by only producing a special rice bread for customers allergic to wheat. Doing so would increase her unit cost by 50¢ per rice loaf. Current monthly profits are $400 on 800 unit sales.
A. Assuming average variable costs are constant at all output levels, what is Kathy's total cost function before the proposed change?
B. What will the total cost function be if rice loafs are produced?
C. Assume rice loaf prices remain stable at $3. What percentage increase in sales would be necessary to maintain current profit levels?