The Debswana Diamond Company has a monopoly on the supply of diamonds. At its currentlevel of output, the marginal cost of producing diamonds is $972 per carat. If the firmmaximizes profit, it will set the price of diamonds atSelect one:a. more than $972 per carat.O b. less than $972 per carat.O c. $972 per carat.O d. a level that equals the minimum possible average cost of producing diamonds.

Pricing a product is an important and difficult decision. Various factors are considered, based on…

Answered: The Debswana Diamond Company has a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Peru Company, which manufactures sneakers, has enough capacity available to accept a special order of 20,000 pairs of sneakers at Ph 6.00 a pair. The normal selling price is Ph 10.00 a pair. Variable manufacturing costs are Ph 4.50 a pair, and fixed manufacturing costs are Ph 1.50 a pair. Peru will not incur any selling expenses as a result of the special order. What could be the effect on operating income if the special order could be accepted without affecting normal sales? O Ph 0 Ph 30,000 increase Ph 90,000 increase O Ph 120,000 increase
Diversity Ltd. produces and sells a product called Star. The company is currently selling 9,560 units of the product which represent £143,400. Total fixed costs equal £66,920 and total contribution equals £66,920. Required: a) Considering this information, is Diversity Ltd. selling a profitable amount of its product Star and which would be your advice for the company? Which is the price per unit at which Diversity Ltd. is selling its product? Explain your answer in detail. b) Consider that, after an increase in the market demand of product Star, Diversity Ltd. sells 25% more units of product Star. In this new situation, is Diversity Ltd. selling a profitable amount of its product Star? Explain your answer in detail. c) Draw a graph related to your previous answers in a) and b). Consider the information from the graph, which would be the financial situation of Diversity Ltd. if sales decrease in more than 25%?
Grace Co. can further process Product B to produce Product C. Product B is currently selling for $24 per pound and costs $16 per pound to produce. Product C would sell for $39 per pound and would require an additional cost of $9 per pound to produce. What is the differential revenue of producing and selling Product C? a.$23 per pound b.$39 per pound c.$30 per pound d.$15 per pound
Suppose that division R can sell any quantity of Ranbax in a perfectly competitive market for $0.33 a pound. To maximize Letang’s income, how many pounds of Ranbax should division R transfer to divisions S and T, and how much should it sell in the external market?
Two currently owned machines are being considered for the production of a part. The capital investment associated with the machines is about the same. The important differences between the machines are their production capacities (production rate × available production hours) and their reject rates (percentage of parts produced that cannot be sold). The material cost is P300.00 per part, and all defect-free parts produced can be sold for P600 each. (Rejected parts have negligible scrap value.) For either machine, the operator cost is P750.00 per hour and the variable overhead rate for traceable costs is P250.00 per hour. Considering the table below: MACHINE A: Production rate: 100 parts/hr Hours available for production: 7hrs/day Percent parts rejected: 10% MACHINE B: Production rate: 130 parts/hr Hours available for production: 6hrs/day Percent parts rejected: 15% What is the profit per day of Machine A? What is the profit per day of Machine B?
Carmen Co. can further process Product J to produce Product D. Product J is currently selling for $20.15 per pound and costs $15.25 per pound to produce. Product D would sell for $36.60 per pound and would require an additional cost of $9.05 per pound to produce. The differential cost of producing Product D is
Brecht Ltd produces a standard product which is sold for £85 each. The business incurred variable costs of £550,000 last year and total costs were £850,000. The business sold 11,000 units during the year and was operating at full capacity. The business intends to expand its output. This will involve building a factory extension, which will increase annual fixed costs by £120,000 per year. 1. Calculate the number of products that need to be sold in order for the business to break even, after the new factory extension has been built. 2. Calculate the profit (loss) that would be generated if the business sold 10,000 units (i) before the factory extension is built. (ii) after the factory extension is built.
The pipes and plastic company manufactures wiring tools. The company is currently producing well below its full capacity. An Accra based company has approached pipes and plastics limited with an offer to buy 10,000 tools at ghc 1.75 each. Pipes and plastic limited sells its tools wholesale for ghc 1.85each; the average cost per unit is gh1.83 of which ghc 0.27 is fixed costs. If pipes and plastics were to accept the Accra based company's offer, what will be the increase in pipes and plastic operating profit?
A US multinational corporation has operations in Bolivia through which it plans to sell a new product of 500,000 cans of beans per year for the next 3 years, at a price of BOB 4 per can after incurring a variable cost of BOB 2.50 per can. The company will also incur a fixed cost of BOB 120,000 per year. The company has invested BOB 900,000 today in manufacturing equipment for its Bolivian operations, which will be depreciated at $300,000 annually over its 3-year life. The corporation's required rate of return (WACC) is 20% and has a tax rate of 25%. The spot rate was BOB 6.91/$ before it unexpectedly changed to BOB 7.25/$. What is the value of the Bolivian operations prior to the unexpected change in the spot rate assuming that the operations have a 3-year life only? (round to the nearest dollar) US$237,699 US$107,453 US$159,076 88 US$166,903
Green Co. incurses cost of $15 per pound to produce Product X, which it sells for $26 per pound. The company can further process Product X to produce Product Y. Product Y would sell for $30 per pound and would require an additional cost of $10 per pound to be produced. The differential cost of producing Product Y is _____.
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 58,000 Rets per year. Costs associated with this level of production and sales are as follows: Unit Direct materials Direct labour $25.00 18.00 13.00 Total $1,450,000 1,044,000 754,000 1,102,000 19.00 Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense 4.00 232,000 348,000 6.00 Total cost $ 85.00 $4,930,000 The Rets normally sell for $90 each. Fixed manufacturing overhead is constant at $1,102,000 per year within the range of 33,000 through 58,000 Rets per year. Required: 1. Assume that, due to a recession, Polaski Company expects to sell only 33,000 Rets through regular channels next year. A large retail chain has offered to purchase 25,000 Rets if Polaski is willing to accept a price lower than the regular $90. There would be no sales commissions on this order; thus, variable selling expenses would be…
Cox Electric makes electronic components and has estimated the following for a new design of one of its products. Fixed cost = $12,350 • Material cost per unit = $0.16 •Labor cost per unit = $0.12 •Revenue per unit = $0.66 Note that fixed cost is incurred regardless of the amount produced. Per-unit material and labor cost together make up the variable cost per unit. Assuming that Cox Electric sells all that it produces, profit is calculated by subtracting the fixed cost and total variable cost from total revenue. Construct an appropriate spreadsheet model to find the profit based on a given production level and use the spreadsheet model to answer these questions. (a) Construct a one-way data table with production volume as the column input and profit as the output. Breakeven occurs when profit goes from a negative to a positive value; that is, breakeven is when total revenue = the total cost, yielding a profit of zero. Vary production volume from 0 to 100,000 in increments of 10,000.…

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