MANAGERIAL ACCT W/CONNECT >IC<
15th Edition
ISBN: 9781259405303
Author: Garrison
Publisher: MCG
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Question
Chapter AA, Problem 4P
To determine
Concept Introduction:
Price Electricity of demand: The price elasticity of demand is the measure of the change in the quantity sold or demanded of a product or service in relation to its price change. It is represented in percentage terms.
Profit-maximizing price: It is a process that an entity employs to find out the best output and price level in order to maximize its profit. Profit-maximizing price is the price at which the profit is maximized at a given quantity of output and where the marginal revenue is equal to the marginal cost.
(1)
The selling price at which the postal service of St. Vincent makes more money.
Expert Solution
Explanation of Solution
The postal service of St. Vincent makes more money selling the souvenir sheets for $7.00 each. Calculations are given below:
| $7.00 Price | $8.00 Price | |
| (A) No of sheets sold | 100,000 | 85,000 |
| (B) Selling price per sheet | $7.00 | $8.00 |
| (C) Variable cost per sheet | $0.80 | $0.80 |
| Total Sales (A) x (B) | $700,000 | $680,000 |
| Less : Variable cost (A) x (C) | $80,000 | $68,000 |
| Contribution margin | $620,000 | $612,000 |
| Less: fixed cost | $675 | $675 |
| Net Income | $1,515 | $1,805.40 |
To determine
(2)
To compute:
The price elasticity of demand for the souvenir sheets.
Expert Solution
Explanation of Solution
Price elasticity of demand for the souvenir sheets is -1.19 and is computed as below.
To determine
(3)
To compute:
The profit-maximizing price for souvenir sheets.
Expert Solution
Explanation of Solution
Profit-maximizing price for souvenir sheets is $5.01 per souvenir sheet. Calculations are given below.
Price elasticity of demand = −1.19
Variable cost per unit = $0.80
To determine
(4)
To compute:
The profit-maximizing price for souvenir sheets if the variable cost is $1.00
Expert Solution
Explanation of Solution
The postal service of St. Vincent should charge $6.26 per sheet if the variable cost is $1.00 per sheet.
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Required information
[The following information applies to the questions displayed below.]
Jarvie loves to bike. In fact, he has always turned down better-paying jobs to work in bicycle shops where he gets an
employee discount. At Jarvie's current shop, Bad Dog Cycles, each employee is allowed to purchase four bicycles a year
at a discount. Bad Dog has an average gross profit percentage on bicycles of 25 percent. During the current year, Jarvie
bought the following bikes:
Description
Retail Price
Specialized road bike
$ 4,000
Cost
$ 3,600
Employee
Price
$ 2,800
Rocky Mountain mountain bike
5,000
4,100
4,000
Trek road bike
3,900
3,300
2,730
Yeti mountain bike
4,600
3,400
3,680
b. What amount of deductions is Bad Dog allowed to claim from these transactions?
Amount of deductions
Jarvie loves to bike. In fact, he has always turned down better-paying jobs to work in bicycle shops where he gets an
employee discount. At Jarvie's current shop, Bad Dog Cycles, each employee is allowed to purchase four bicycles a year
at a discount. Bad Dog has an average gross profit percentage on bicycles of 25 percent. During the current year, Jarvie
bought the following bikes:
Description
Retail Price
Specialized road bike
$ 4,000
Cost
$ 3,600
Employee
Price
$ 2,800
Rocky Mountain mountain bike
5,000
4,100
4,000
Trek road bike
3,900
3,300
2,730
Yeti mountain bike
4,600
3,400
3,680
a. What amount is Jarvie required to include in taxable income from these purchases?
Amount to be included
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