Answer: 0.48
Explanation:
The probability that the residents of a household own 2 cars and have an income over $50,000 a year can be calculated by;
= Probability that residents own 2 cars if annual household income is over $50,000 * probability of households earning more than $50,000
= P(Two cars I 50,000+) * P(50,000 +)
= 80% * 60%
= 0.48
Courageous, Inc. just paid a dividend of $1.80per share on its stock. The dividends are expected to grow at a constant rate of 3 percent per year, indefinitely. If investors require a 12 percent return on Courageous stock, what is the current price? What will the price be in 3 years? In 15 years?
PART A:
Current Price: $____________.
PART B:
Price in Three Years: $____________.
PART C:
Price in Fifteen Years: $____________.
Answer:
P0 = $20.6
P3 = $22.5101762 rounded off to $22.51
P15 = $32.09412 rounded off to $32.09
Explanation:
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
D0 * (1+g) is dividend expected for the next period /year g is the growth rate r is the required rate of return or cost of equity
Current Price
P0 = 1.8 * (1+0.03) / (0.12 - 0.03)
P0 = $20.6
Price in three years
To calculate the current price of P0 we use the dividend for Year 1 or D1. Similarly, to calculate the price in three years or P3, we will use D4.
P3 = 1.8 * (1+0.03)^4 / (0.12 - 0.03)
P3 = $22.5101762 rounded off to $22.51
Price in fifteen years
We will use D16.
P15 = 1.8 * (1+0.03)^16 / (0.12 - 0.03)
P15 = $32.09412 rounded off to $32.09
Suppose Shaan invested just $10,000 of his own money and had a $90,000 mortgage with an interest rate of 8.5 percent. After three years, he sold the property for $120,000.
(a) What is his gross profit?
(b) What is his net profit or loss? (Input the amount as a positive value.)
(c) What is the rate of return on investment? (Negative amount should be indicated by a minus sign. Enter your answer as a percent rounded to 2 decimal places.)
Answer:
a. $20,000
b. -$2,950
c. -29.50%
Explanation:
The computation is shown below:
a. Gross Profit is
= Sale value of Property - Invested amount - Mortgage amount
= $120,000 - $10,000 - $90,000
= $20,000
b. Net Profit
= Gross profit - number of years × mortgage amount × rate of interest
= $20,000 - 3 × $90,000 × 8.5%
= -$2,950
And,
c) Rate of return is
= Net profit ÷ invested amount
= -$2,950 ÷ $10,000
= -29.50%
One effective way to manage credit card debt is to:
A. exaggerate your income when applying for a credit card.
B. spend your entire credit limit before making any payments.
C. replace high-interest credit cards with low-interest options.
D. always pay only the minimum payment required each month.
Answer:
C. replace high-interest credit cards with low-interest options.
Explanation:
A credit card provides a secure and convenient way to pay for goods and services even when they do not have money. The credit card gives the user access to instant credit every time they use it. The user does not incur any charges should they pay the amount due before its due date.
Credit card interest rate charges are among the highest in the industry. If the user is late in their payment, the interest fee and other charges accumulate real quick. Shifting to cards with lower interest is one way of managing credit card debts.
On June 1, 2018, Marigold Company and Swifty Company merged to form Nash Inc. A total of 769,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2020, the company issued an additional 599,000 shares of stock for cash. All 1,368,000 shares were outstanding on December 31, 2020. Nash Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date. Nash Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,688,000. (The tax rate is 20%.)
Determine the following for 2020:
a. Basic earnings per share.
b. Diluted earnings per share.
c. The earnings figures to be used for calculating:
d. Basic earnings per share.
e. Diluted earnings per share.
Answer:
a. Basic earnings per share.
weighted average outstanding:
January 1 = 769,000 stocks
April 1 = 599,000 x 9/12 = 449,250 stocks
total weighted average outstanding stocks = 1,218,250 stocks
basic earnings per share = $1,688,000 / 1,218,250 = $1.3856 ≈ $1.39
b. Diluted earnings per share.
diluted shares = ($600,000 / $1,000) x 36 stocks x 1/2 = 10,800
diluted earnings per share = $1,707,200 / (1,218,250 + 10,800) = $1,707,200 / 1,229,050 = $1.389 ≈ $1.39
c. The earnings figures to be used for calculating:
Basic earnings per share
= net income = $1,688,000
Diluted earnings per share
= net income + interests saved - taxes on interests saved = $1,688,000 + $24,000 - $4,800 = $1,707,200
The basic principle involved with expense recognition is: Multiple Choice All costs that are used to generate revenue are recorded in the period the revenue is recognized. All transactions are recorded at the exchange price. The business is separate from its owners. The business will continue to operate indefinitely unless there is evidence to the contrary.A company orders office supplies in June. Those supplies are received and paid for in July. The supplies are used in August. In which month should the company record supplies expense
Answer:
All costs that are used to generate revenue are recorded in the period the revenue is recognized
Supplies expense is recorded in August
Explanation:
Expenses are the cost that a company incurs in the process of generating revenue from an asset. As such when a business is paying cost like wages, rent, and office materials it is generating revenue from sales and services provided.
The expense recognition principle requires that a business records expenses when revenue associated with them are recognised.
An office that orders office supply and uses them in August will only recognise supply expense when there is use of the office supply.
So supply expense will be recognised in August
Simon has net investment income of $38,000 and MAGI of $223,000 and files as a single taxpayer. Simon's additional Medicare tax is:______________
Answer:
$874
Explanation:
Calculation for Simon's additional Medicare tax
Based on the information given we were told Simon has a MAGI of the amount of $223,000 in which part of it is for wages income of the amount of $185,000 ($223,000 -$38,000)
while the amount of $38,000 is the net investment income which means that Samson MAGI is below the threshold limit of the amount of $200,000, therefore tax rate of 3.8% tax will be applied.
Now let calculate the additional Medicare tax
Additional Medicare tax = ($38,000-$15,000)*3.8%
Additional Medicare tax =$23,000*3.8%
Additional Medicare tax = $874
Therefore Simon's additional Medicare tax is:874
Suppose currently, there is free trade with no government intervention. Suppose now the government in Econland wants to intervene in this market and bring widget prices back to the pre-trade free market price of F. What could they do achieve this?A. The government cannot do anything to bring widget prices back to FB. Set a quota on imports of LNC. Set a quota on imports of 0D. Tax imports by KRE. Tax imports by $0
Answer:
Tax imports by KRE
Explanation:
When there is complete, unregulated free trade in the economy, the price of widgets in any local economy is the same as the world price.
In this case, i the government in Econland wants to bring back the price of widgets, from world price, to previous domestic price, all it has to do is to impose a tax on imports equal to the value of the difference between the world price and the previous price. This tax on imports is known in economics as a tariff, and it is the most commonly tool of protectionist economic policy.
For example, suppose that the world price of widgets, under free trade is $2 each, and the previous price was $4, so in order to raise the price for world price to previous price, all the government has to do is to impose a tariff of $2, like this, widgets in the domestic market will be $4 again.
If there is free trade without the intervention of the government, the way that the government can intervene would be to Tax imports by KRE.
What is free trade?
This is the type of trade in an economy where the government of the country would not intervene in the market.
In this market system, the government would not use tariffs on the exports or try to discriminate against imports in the country.
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You invest 50% of your money in security A with a beta of 1.6 and the rest of your money in security B with a beta of 0.7. The beta of the resulting portfolio is:_____
a. 1.08
b. 0.8
c. 1.40
d. 1.15
e. 0.36
Answer:
The answer is D). 1.15, hope this helps, have a great day/night, stay safe, happy thanksgiving!
Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond?
a. the price of the bond will fall
b. the price of the bond will raise
Answer: a. the price of the bond will fall.
Explanation:
If one buys a 7% coupon, 20-year bond today when it’s first issued and the interest rates suddenly rise to 15%, the value of the bond will decrease.
This is because there's an inverse relationship between price and interest rates, that is, the increase in one variable will lead to the decrease in the other variable. When there is a rise in the inters rate, it should be noted that the payments on fixed coupon are worth less.
Therefore, the price of the bond will fall.
Parker is a highly skilled sales person at Byberry, which is a 30-year-old company that has grown significantly in terms of revenue and product offerings. It sponsors a pension plan that provides a benefit of 2% times the years of participation times the average of the final three years of salary. Parker has worked for Byberry for the last 30 years and earned $200,000 two years ago, $150,000 last year, and $250,000 this year. If he is retiring this year, how much should he expect to receive as a pension benefit?
Answer:
$120,000
Explanation:
The retirement benefit that Parker expects is
2% x number of years worked( 30 ) x {($200,000 +$150,000 +$250,000) /3}
=2/100 x 30 x (600,000/3)
=0.02 x 30 x $200,000
=0.6 x $200,000
=$120,000
J-Pac Co. uses the Allowance Method to account for uncollectible Accounts Receivable. If they determine that $900 of the balance owed by Matt Evans is uncollectible, the correct entry to write it off would be:
Answer and Explanation:
The correct entry to write off is shown below:
Allowance for Doubtful Accounts $900
To Accounts Receivables $900
(Being written off is recorded)
Here the allowance for doubtful accounts is debited as it increased the assets and the account receivable is credited as it decreased the assets. Also, the assets contains the normal debit balance
If the general level of interest rates in the economy moves up, then investors will require a _____ rate of return on securities, and, in general, stock prices should _____ , ceteris paribus.
A. lower, increase
B. higher, decline
C. higher, increase
D. lower, decline
Answer:
B. higher, decline
Explanation:
Monetary policy can be defined as the actions (macroeconomic policies) adopted and undertaken by the central bank of a particular country to control the money supply and interest rates so as to boost or enhance economic growth. The central bank uses monetary policies to manage inflation, economic growth through long-term interest rates and level of unemployment in a country. In order to boost economic growth, monetary policy is used to increase money supply (liquidity) while it is also used to prevent inflation by reducing money supply.
If the general level of interest rates in the economy moves up, then investors will require a higher rate of return on securities such as bonds, and, in general, stock prices should decline because they are less volatile, ceteris paribus (all things being equal).
Do you agree or disagree with the following statements
a. The demand curve facing a monopolistic competitor in a market where all producers charge different prices becomes less elastic when it engages in international trade
b. According to the gravity equation, countries closer to each other trade more
c. The only gain from trade in monopolistic competition in trade is lower prices
d. The closer to 1 the index of intra industry trade is, the greater the difference between exports and imports of the same goods.
Answer:
a. The demand curve facing a monopolistic competitor in a market where all producers charge different prices becomes less elastic when it engages in international trade - Disagree
This statement is not true. If a monopolistic competitor engages in international trade, it will meet more competition, meaning that the audience (demand) that it has is more sensitive to prices, because they have more options available.
b. According to the gravity equation, countries closer to each other trade more - Agree
The gravity equation tells us that the volume of international trade is correlated with geographical proximity and economic size. That is to say, the closer and larger two economies are, the more international trade they engage with each other.
c. The only gain from trade in monopolistic competition in trade is lower prices - Disagree
Gains are the most important in lower prices, but there are also gains in competitiveness and quality.
d. The closer to 1 the index of intra industry trade is, the greater the difference between exports and imports of the same goods. - Disagree
An index of intra industry trade of 1 indicates that the country imports and exports roughly the same amount for a particular type of goods (the goods that belong to that industry). Hence, the statement is not true.
A $10,000 bond with 18%/year, compounded semi-annually (interest is paid every six month) is available in the market. The bond matures in 10 years. The closest PW of this bond if the purchaser can earn 12%/year, compounded quarterly is:_____.
Answer:
present value = 13313.50
Explanation:
given data
bond = $10,000
interest = 18% per year = 9% per semi annual period
bond matures = 10 years = 20 semi annual period
purchaser can earn = 12% per year compounded quarterly = 3% per quater
so efftive semi annual rate is
efftive semi annual rate = (1+3%)² - 1
efftive semi annual rate = 6.09%
and
we get here coupon paymnet that is
coupon payment = 9% × $10,000
coupon payment = $900
so present value is
present value = 900 (P/A,6.09%,20) + 10000 (P/F,6.09%,20)
present value = 900 × 11.3865 + 10000 × 0.3065
present value = 13313.50
For the past year, Momsen, Ltd., had sales of $45,212, interest expense of $3,386, cost of goods sold of $15,609, selling and administrative expense of $11,196, and depreciation of $5,545. If the tax rate was 35 percent, what was the company's net income?
Answer:
$11,704
Explanation:
Given the above information, we will use the formula below to calculate the net income.
Net income= (Sales - cost of goods sold - selling and administrative expenses - interest - depreciation expense - depreciation) - tax + depreciation.
Sales
$45,212
COGS
($15,609)
Gross profit
29,603
Less:
Selling and administrative expense
($11,196)
Interest expense
($3,386)
Depreciation
($5,545)
EBT
$9,476
Tax $9,476 × 35% = ($3,317)
Depreciation
$5,545
Net income
$11,704
Explain the importance of feedback in the communication process.(3marks)
Scubapro Corporation currently has 500,000 shares of common stock outstanding and plans to issue 200,000 more shares in a seasoned equity offering. The current shareholders have pre-emptive rights on any new issues of common stock by Scubapro Corporation. How many shares would an investor who currently has 20,000 shares, have the right to buy if she exercises her pre-emptive right?A) 200,000 shares.
B) 120,000 shares.
C) 20,000 shares.
D) 12,000 shares.
E) 8,000 shares.
Answer:
Scubapro Corporation
The investor who currently has 20,000 shares has the right to buy this number of shares, if she exercises her preemptive right:
E) 8,000 shares.
Explanation:
Data and Calculations:
Outstanding common stock = 500,000
Planned issue of additional shares = 200,000
Proportion of new issue to outstanding = 0.40 (200,000/500,000)
For an investor with 20,000 shares, she has the right to buy 8,000 (20,000 * 0.40) additional shares.
The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The company is planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next four years, respectively. After that the dividend will be a constant $2.50 per share per year forever. A) What is the market price of this stock if the market rate of return is 15 percent? Also estimate the dividend yield over the first year.
B) Continue from the previous problem. What is the market price of this stock in one year? What is the capital gains yield over the first year?
Im looking for help on part B, I have already completed part A but it would be helpful to check my answer. ($26.57/share)
Answer:
a)
Div₁ = $3
Div₂ = $5
Div₃ = $7.50
Div₄ = $10
Div₅ = $2.50
the terminal value at year 4 = $2.50 / 15% = $16.67
P₀ = $3/1.15 + $5/1.15² + $7.50/1.15³ + $26.67/1.15⁴ = $2.61 + $3.78 + $4.93 + $15.25 = $26.57
dividend yield over the first year = $3 / $26.57 = 11.29%
b)
P₁ = $5/1.15 + $7.50/1.15² + $26.67/1.15³ = $4.35 + $5.67 + $17.47 = $27.49
capital gains yield = ($27.49 - $26.57) / $26.57 = 3.46%
Match each balance sheet item to its correct category.
Categories: Assets, Liabilities, Equity
Balance sheet items: Cash, Rent, Loan, wages payable, retained earnings, computers, furniture, owners personal investment
Answer:
See below
Explanation:
Assets, Liabilities, and Equity form the basis for preparing the balance sheet. They make the accounting equation of Assets= Liabilities + Equity.
Assets are the valuables a business owns. They can be in the form of cash, money in the banks, financial instruments, properties, machines, or motor vehicles.
Assets will be
Cashcomputers,furnitureLiabilities are what the business owes to third parties and supplies. Liabilities are usually in the monetary form, such as loans, rent, and accounts payable.
Liabilities
Rent, Loanwages payable,Equity is the owner's contribution to the business. They include capital and retained earnings.
Equity
retained owners personal investment earnings, Sick time and vacation time are considered a benefit because even
though you are not at work you still get paid.
True
False
Answer:
TRUEE
i just know
Explanation:
Hope this helps!
if so please dont forget to mark BRAINLIST!!
thx
Donna runs an inn and charges $300 a night for a room, which equals her cost. Sam, Harry, and Bill are three potential customers willing to pay $500, $325, and $250, respectively. When the government levies a tax on innkeepers of $50 per night of occupancy, Donna raises her price to $350. The deadweight loss of the tax is:________
a. $25
b. $50
c. $100
d. $150
Answer:
a. $25
Explanation:
According to the given situation, the computation of deadweight loss of the tax is shown below:-
Deadweight Loss = 1 ÷ 2 × 1 × ($350 - $300) = 1 ÷ 2 × ($50)
Or, Deadweight Loss = 1 ÷ 2 × ($50)
Or, Deadweight Loss = $25
Therefore the correct option is a. $25
We simply considered the above values so that the deadweight loss of the ta could come
The deadweight loss of the tax is :
According to the given situation, the computation of deadweight loss of the tax is shown below:-
Deadweight Loss = 1 ÷ 2 × 1 × ($350 - $300) = 1 ÷ 2 × ($50) Deadweight Loss = 1 ÷ 2 × ($50) Deadweight Loss = $25The deadweight loss of the tax is $25.
Thus, the correct answer is a.
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The human resources department at a major high tech company recently conducted an employee satisfaction survey of 100 of its 3000 employees.Data were collected on such variables as age,gender,marital status,current salary,level of overall satisfaction on a scale from 1 to 5,number of years with the company,and job title.Which of the variables listed are considered to be ratio level data?A) Age and years with the companyB) Gender and marital statusC) Job titleD) None of the variables is ratio level.
Answer: Gender and marital status and Job title.
Explanation:
Ratio scale simply refers to a form of quantitative variable measurement scale whereby differences can be compared by the researcher.
Of the options given among variables listed are considered to be ratio level data are gender, marital status and Job title.
Yukelson Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows:
Cost when acquired $ 396,000
Accumulated depreciation (based on straight-line depreciation, an estimated life of 50 years, and a $36,000 residual value) 72,000
During January of this year, on the basis of a careful study, management decided that the total estimated useful life should be changed to 30 years (instead of 50) and the residual value reduced to $30,000 (from $36,000)). The depreciation method will not change.
Required:
1. Compute the annual depreciation expense prior to the change in estimates.
2. Compute the annual depreciation expense after the change in estimates.3. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year?
Answer:
1. Compute the annual depreciation expense prior to the change in estimates.
annual depreciation = ($396,000 - $36,000) / 50 = $7,200 per year
2. Compute the annual depreciation expense after the change in estimates.
annual depreciation = ($324,000 - $30,000) / 20 = $14,700 per year
3. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year?
Any changes in an asset's useful life are reported prospectively, this means that they do not affect any past records, only future records are affected. In this case, the depreciation expense per year will increase form $7,200 to $14,700, so net income will be negatively affected by it. Cash flows will not be affected, since depreciation expense is a non-cash expense. P,P&E on the balance sheet will be affected because the net value of the building will decrease faster.
You are the strategic leader of a highly competitive electronics company, Anderson Inc. Anderson Inc. is a global leader in electronics sales to corporate and international customers. The competitive nature of the market is creating the need to implement new and well researched strategies and online tools in order to compete with another company that is taking contracts from your organization daily. This other company, Henkerson Inc., is offering products at a slightly lower cost. Their customer service ratings, however, are much lower than Anderson Inc.
Anderson’s customer service could be superior as a result of :_________
Answer:
The options are missing, so I looked for similar questions. The option that I believe is correct is:
A good reputation for having few OOS (out-of-stock) problems when fulfilling large orders.Customer service is extremely important in today's world were competition is fierce and global. The less competition, the less value customer service has, but companies from around the world compete against each other. E.g. if you do not like how some salespeople treat you at a certain store, you can go online and buy the same products from a retailer 2,000 miles away. You must always remember that keeping old customers happy and loyal is always much easier and cheaper than getting new customers.
In a B2B environment, costs are important, and any difference in costs is much more important because the quantities sold are larger. But if the company that sells the lower priced products offers a terrible customer service and is not able to fulfill orders in time, then B2B clients will leave them because time is money. Th elonger the lead time, the higher the stockout probabilities and you require a larger safety stock which costs money.
These items are taken from the financial statements of Cullumber Company at December 31, 2022.
Buildings $88,872
Accounts receivable 10,584
Prepaid insurance 2,688
Cash 9,946
Equipment 69,216
Land 51,408
Insurance expense 655
Depreciation expense 4,452
Interest expense 2,184
Common stock 50,400
Retained earnings (January 1, 2022) 33,600
Accumulated depreciation—buildings 38,304
Accounts payable
Answer:
lkpojiuhygtfrdrswaqzxcvbnmkgsawru
Compute the standard cost for one hat, based on the following standards for each that:_______. Standard material: 3/4 yard of fabric at $5.00 per yard Standard labor: 2 hours at $5.75 per hour Factory overhead: $3.20 per direct labor hourRound your answer to two decimal places. Total standard cost $______
Answer:
$21.65
Explanation:
Computation for the Total standard cost
Using this formula
Total standard cost = Material cost + Labor cost + Overhead cost
Let plug in the formula
Total standard cost = 3/4*5 + 2*5.75 + 3.2*2
Total standard cost= $21.65
Therefore the Total standard cost will be $21.65
The relevant production range for Challenger Trailers, Inc. is between 120,000 units and 190,000 units per month. If the company produces beyond 190,000 units per month:__________. A. the fixed costs and the variable cost per unit will not change B. the fixed costs may change, but the variable cost per unit will remain the same C. the fixed costs will remain the same, but the variable cost per unit may change D. both the fixed costs and the variable cost per unit may change
Answer: D. both the fixed costs and the variable cost per unit may change
Explanation:
It is said that Fixed costs do not change regardless of production level but this is not entirely true. Fixed costs usually do not change for a production range but if the range is passed, the fixed costs might then increase and a new fixed cost for the new relevant range will be charged.
Variable costs are variable because they change with production so if the company is producing more units, they will be incurring more variable costs.
In conclusion therefore, if the company produces more units than its relevant production range, it risks both fixed and variable costs changing.
XYZ Corporation, whose common stock is currently selling for $40 per share, is having a rights offering. The terms of the offering require 10 rights plus $35 to subscribe to one share of stock. Compute the theoretical value of a right before the ex-rights date.
Answer:
$0.45
Explanation:
Computation for the theoretical value of a right before the ex-rights date
Using this formula
Theoretical value=(Common stock-Required offering subscription shares)÷(Offering require right+1)
Let plug in the formula
Theoretical value= ($40 ‒ $35) ÷ (10+1)
Theoretical value= $5.00 ÷ 11
Theoretical value=$0.45
Therefore the theoretical value of a right before the ex-rights date will be $0.45
Suppose that instead of paying per hour, a moving company offers a flat rate of $1,200 for movers plus a truck for an eight hour day. If you hired this moving company and used them for the entire eight hours, how much consumer surplus would you gain?
Answer:
the first part of the question is missing, so I looked for a similar one (see attached image):
the cost of hiring a moving crew for 8 hours = $250 per hour x 8 hours = $2,000
the competing company offered you a deal worth $1,200
since you expect to use the moving crew during the whole 8 hours, you will gain = $2,000 - $1,200 = $800 in consumer surplus
Consumer surplus is the difference between what a consumer (in this case you) are willing to pay for a good or service and the actual price of the good or service. Consumer should be willing to consumer a good or service as long as the consumer surplus is ≥ 0.
800 dollars of consumer surplus would be earned.
We can arrive at this answer as follows:
You must calculate the cost of hiring the team. This will be done with the following calculation:[tex]250*8=2,000[/tex]
In this case, we can consider that the cost of hiring the team for eight hours of work will be [tex]2,000[/tex] dollars.
Then, we can calculate the difference between the team's hiring price and the $1,200 that the competitor offered. This will be done with the following calculation:
[tex]2,000-1,200=800[/tex]
With that, we can say that the consumer surplus is equal to 800 dollars.
The question above is incomplete. The full question is in the attached image.
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the BE in units for CompuTech in 2021?
Q2: What impact would occur to the BE if the variable cost of materials rose by 10% during
the year?
Question Completion:
Assuming the following: (i) the sales price for each CompuTech product sold is $50; (ii) each product sold costs $25 in Raw Material components; and the business Fixed Cost is $45,000.
Q1: What is the BE in units for CompuTech in 2021?
Q2: What impact would occur to the BE if the variable cost of materials rose by 10% during the year?
Answer:
CompuTech
Answer 1: The BE (Break-even Point) in units for CompuTech in 2021 is:
1,800 units.
Answer 2: If the variable cost of materials rose by 10%, the BE will increase to:
2,000 units.
Explanation:
a) Data and Calculations:
Selling price per unit = $50
Direct material cost per unit = $25
Contribution per unit = $25
Fixed Cost = $45,000
Break-even point = Fixed Cost/Contribution per unit
= $45,000/$25
= 1,800 units
b) BE if the variable cost of materials rose by 10% during the year:
Selling price per unit = $50
Direct material cost per unit =$27.50 ($25 * 1.1)
Contribution per unit = $22.50
Fixed Cost = $45,000
Break-even point = Fixed Cost/Contribution per unit
= $45,000/$22.50
= 2,000 units
c) The break-even point in units represents the quantity at which the costs of production equal the revenues for the goods. It is the point where no profit is made, but all the costs, including fixed costs, are covered by the revenues.