Fixed Cost Essays and Research Papers

Instructions for Fixed Cost College Essay Examples

Title: Essays

  • Total Pages: 5
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Essay Instructions: I would like a research project consisting of 10 pages. Each page should address each of the following essay questions. Each essay question should contain a minimum 200-300 word response. You should use additional Internet references and professional journals to defend your response, and reference these sources at the end of the Section Exam. Refer to the APA style manual for citation guidelines. If a Section Exam question requires the use of formulas and computations, identify the formula(s) you are using and show your computations.

1. Cats and Dogs, Inc. sells one of its products for $8 per unit. In connection with that product, it has the following costs:
Rent $1,200
Factory Labor $1.50 per unit
Executive Salaries $112,000
Raw Materials $.70 per unit
Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit, compute the breakeven point in units.

2. The following is the December 31 2003 balance sheet for Athens

Cash 70,000
Accounts Receivable 150,000
Inventory 280,000
Total Current Assets 500,000

Plant and Equipment 1,250,000
Less Accumulated Depreciation 250,000
Net Plant and Equipment 1,000,000

Total Assets 1,500,000


Accounts Payable 100,000
Notes Payable 120,000
Bonds Payable 300,000
Total Liabilities 520,000


Common Stock 300,000
Paid In Capital 200,000
Retained Earnings 480,000
Total Equity 980,000

Total Liabilities and Equity 1,500,000
Sales for 2003 were $2,000,000, with the cost of goods sold being 55% of sales. Depreciation expense was 10% of the gross plant and equipment at the beginning of the year. Interest expense was 9% on the notes payable and 11% on the bonds payable. Selling and administrative expenses were $200,000 and the firm?s tax rate is 40%.
Prepare an income statement.

3. Barns and Nibbles Bookstore had a net income in 2002 of $90,000. Some of the financial ratios from its annual report are:
Profit Margin - 12%
Return on Assets - 20%
Debt to Assets Ratio - 55%
Calculate the following:
a) Sales
b) Total Assets
c) Total Asset Turnover
d) Total Debt
e) Stockholders? Equity
f) Return on Equity

4. If we divide users of financial ratios into short-term lenders, long-term lenders, and stockholders, which ratios would each group be most interested in, and for what reasons?

5 US Sports Company projects the following sales:
April May June
$75,000 $95,000 $110,000

Ninety percent of US' sales are on credit with 60 percent of receivables collected in the month after the sale and the rest of receivables are collected in the second month after the sale. February sales were $60,000 and March sales were $70,000. In the past US' bad debt percentage has been zero and is expected to continue at that level.
a) Prepare a monthly schedule for cash receipts for April through June.
b) What is the balance of Receivables at the end of June?

6. During 2003, A Company and Z Company made the following identical purchases in the order shown:
100 units @ $10.00 each
200 units @ $10.50 each
200 units @ $11.50 each
100 units @ $12.00 each
Each company sold 400 units but A Company uses LIFO inventory costing and Z Company uses FIFO inventory costing. Assume there was no beginning inventory. Calculate the value of ending inventory for both companies and the cost of goods sold for both companies.

7, Following is the balance sheet for 2003 for Tall Tree Company:

Cash $ 15,000
Accounts Receivable 90,000
Inventory 60,000

Current Assets 165,000
Fixed Assets 60,000

Total Assets 225,000


Accounts Payable 90,000
Notes Payable 30,000
Accrued Expenses 7,500

Current Liabilities 127,500

Common Stock 75,000
Retained Earnings 22,500

Total Liabilities and Equity 225,000
Sales for 2002 were $300,000. Sales for 2003 have been projected to increase by 20%. Assuming that Tall Tree is operating below capacity, calculate the amount of new funds required to finance the projected growth. Tall Tree has an 8% return on sales and 70% is paid out as dividends. You will need to prepare a Percent of Sales table.

8. Money Corporation produces class rings. The rings sell for $75 each and cost $35 each to produce. Money's fixed costs are $50,000.
a) What is Money's break-even point in rings?
b) How much profit or loss will Money have if it sells 8,000 rings?

9. Outdoor Sports Company, with its main office in Iowa, is considering opening a branch office in Los Angeles. Under normal economic conditions, which have a 45% chance of occurring, Outdoor can expect to earn a net income in that branch office of $50,000. If there is a mini-recession, which has a 25% chance of occurring, Outdoor will earn $20,000 in that branch office. In a severe recession, which has a 20% chance of occurring, Outdoor will lose $10,000 in the branch office. There is also a slight chance (10%) that the branch office will be a failure and Outdoor will lose $300,000. Should Outdoor open the branch office?

10. Bright Flashlight Company needs $300,000 to take a cash discount of 2/10, net 70. A bank will loan the money for 60 days at a total interest cost of $5,500.
a. What is the effective rate on the bank loan?
b. How much would it cost (as a percentage) I the company did not take the cash discount, but paid the bill in 70 days rather than 10 days?
c. Should the company borrow the money to take the discount?
d. If the banker requires a 20% compensating balance, how much must the firm borrow to end up with $300,000?

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Title: Why does a firm have fixed costs of production in the short run b Explain the typical shape of the short run average fixed costs AFC the short run average variable costs AVC and the short run average total cost ATC curves c Outline what is meant by economies and diseconomies of scale and how they affect the shape of the long run average cost curve LRAC

  • Total Pages: 6
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  • Bibliography:12
  • Citation Style: MLA
  • Document Type: Research Paper
Essay Instructions: please use simple English because I am an ESL student.

Economics Assessment

This assessment will test your:
1. understanding of the theory of production and costs
2. ability to present reasoned arguments in an essay, written clearly and concisely;
3. ability to draw appropriate diagrams to explain your argument
4. ability to develop and apply independent learning skills through personal research for the assessment

a) Why does a firm have fixed costs of production in the short-run? b) Explain the typical shape of the short-run average fixed costs (AFC), the short-run average variable costs (AVC), and the short-run average total cost (ATC) curves, c) Outline what is meant by economies and diseconomies of scale and how they affect the shape of the long-run average cost curve (LRAC).
Your essay should^
• Outline the types of costs and what they mean
• Explain the difference between short-run and long-run
• Explain why in the short-run at least one of the costs is fixed
• Draw and explain the shapes of AFC, AVC and the ATC
• Explain the term economies and diseconomies of scale
• Explain the shape of the LRAC curve.

Word limit: 2000 words (excluding references). Marking Criteria
Marks for this assignment will be given according to the following criteria:
a) Clear explanation of concepts that show understanding beyond what is provided in the lecture slides and main text;
b) the way in which appropriate diagrams are integrated into your assignment;
c) your explanation of the how the law of diminishing marginal productivity affects the short-run cost curves;
d) your explanation of how economies and diseconomies of scale shape the LRAC;
e) the quality of grammar and the structure of your answers;
f) the accurate referencing of any texts and data sources that you have used in answering the questions (a referencing guide is given below).


1. Ensure that you remain within the word limits given. I will stop marking once the word limit has been exceeded. The word limit is to test whether you can write concisely, thereby getting all the main points down without wandering 'off-topic'.
2. In presenting your answer, it is best to avoid using too many sub-headings and to not use lots of bullet points or the numbering of paragraphs. Otherwise your answer will look like a set of notes/instructions/textbook and appear disjointed. You should try to use continuous prose. This enables you to develop arguments and to inter-link issues you are raising.
4. At the end of your essay, you should list out all books to which you have referred in your assessment using the Harvard style. Your list should be alphabetical by author and list out the author(s)'s surname, first name, date of publication, title of book, publisher of book and the place of the book's publication. If you have used internet sources, you should give the author(s)'s name, title of web page, the full internet address of the page(s) you have used and the date(s) that they were accessed. However, the internet sources should be reliable and no more than three. Poorly referenced work will be penalised as the quality of referencing is part of the marking scheme [criterion (f)].
5. You should not copy large pieces of text from a book, another person's essay or internet sites and imply that it is your own work.

6. Word processed answers should use a 1.5 or double spacing and a 12 font size. Always leave a margin so that I have space to insert any comments I would like to make as I am reading your work.

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Works Cited

Ben-Akiva, Moshe (2008). 'Theory of the Firm.' OpenCourse Ware, Massachussetts

Institute of Technology, Cambridge Mass. Online (March 16, 2011):

Bober, Stanley (2001). Alternative Principles of Economics M.E. Sharpe, New York.

Braff, Allan (1969). Microeconomic Analysis. John Wiley & Sons, Inc., New York.

Breit, William and Hochman, Harold (1968) Readings in Microeconomics. Holt, Rinehart

and Winston, Inc.

Henderson, James M. And Quandt, Richard E. (1958). Microeconomic Theory / a

Mathematical Approach. McGraw-Hill, New York.

Keynes, John Maynard ([1936] 1973). The Collected Writings of John Maynard Keynes,

Vol. VII, the General Theory of Employment Interest and Money. The Royal Economic Society. Macmillan, New York.

Knight, Frank ([1934] 1967). The Economic Organization. Augustus M. Kelly, New York.

Robinson, Joan (1959). The Economics of Imperfect Competition. MacMillan & Co, New


Petroff, John. (2002). 'Chapter 3: Production Costs.' Professional Educational

Organization International, undated. Online (March 17, 2011):

Reynolds, Lloyd (1971). Principles of Economics: Micro. Roger Hermanson, ed.

Learning Systems Company, Illinois.

Smith, Adam ([1776] 1937). The Nature and Causes of the Wealth of Nations. Edwin Cannan, ed. New York: The Modern Library, New York.

Vickrey, William. "marginal and average cost pricing." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 17 March 2011 doi:10.1057/9780230226203.1024

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Title: 1 Downsizing Fixed Costs Industry downsizing a major part corporate world government agencies downsizing GovernmentExecutive covers business federal government huge departments agencies dozens dwarf largest institutions private sector website

  • Total Pages: 2
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Essay Instructions: 1. Downsizing and Fixed Costs

Industry downsizing has been a major part of the corporate world, even government agencies are downsizing. "covers the business of the federal government and its huge departments and agencies - dozens of which dwarf the largest institutions in the private sector" on its website. Read the assigned Government Executive article and answer the following questions:
? Which industries have substantially reduced fixed cost commitments?
? Do you believe this reduction in costs has substantially impaired the ability of these industries to meet the needs of their customers?

2. Direct Labor: Variable or Fixed Cost?

Throughout the corporate world, businesses are transforming labor into a more flexible (and variable) cost. Among such companies are Hewlett-
Packard, General Electric, DuPont, Sun Microsystems, and British Airways. Discuss whether direct labor is a fixed or a variable cost. What are
the pros and cons of management treating direct labor as a variable cost? Are there ethical issues to be considered here?

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Title: Mod 4 Case

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Essay Instructions: 1.Accounting Module 3 Case Assignment is below; I need 4 pages for the Assignment below.
Pecos Printers, Inc.
Pecos Printers, Inc. is a small manufacturing firm in Houston, Texas that manufactures color ink jet printers for the small business market. It has just launched the PP 7500. Read the following article from the Los Angeles Times for background on printers in this market. click here
A 50% markup is standard in this industry so that Pecos must sell to distributors below $400 per printer to keep the retail price below the industry top of $600 ($400 * 150% = $600). Paul Pecos, the founder and CEO of Pecos Printers, wants to keep the price to distributors as low as possible so he has carefully engineered his manufacturing process to be as efficient as possible.

The model PP 7500 is an exceptionally desirable model with the following features:
? A monthly capacity of 10,000 copies
? A print speed of 10 copies per minute for black and white and 5 copies per minute for color.
? A lifetime capacity of 120,000 copies.
? The ability to accept readily available HP ink cartridges.
Lester Ledger, the Pecos Controller has developed the following cost sheet for the model 7500:
Cost Category Cost per Unit
Direct Materials (variable) $125
Direct Labor (variable) 50
Overhead (Variable) 30
Overhead (Fixed)* 45
Total Unit Costs $250
*This is determined on a per unit basis as followed. Lester assumes that the annual fixed overhead costs for this product will be $450,000 and that approximately 10,000 Model 7500's will be produced during the current year. Pecos has the capacity to produce 20,000 units per year without increasing fixed costs.
Paul has determined that approximately 20% of the total manufacturing costs are necessary for a decent profit. Therefore, the minimum wholesale cost for this model is $300 ($250 * 120%) and the resulting minimum retail price is $450 ($300 * 150%).
Based on these data, Paul has developed the following pricing rule for his sales staff: Accept any offer from distributors of $300 or more and reject any offer below $300.
The sales staff is on salary with no commission paid for any sale. The salesmen negotiate with distributors who make firm offers which the Pecos salesmen then either accept or reject. Last month the three salesmen reported the following offers and results:
Offer (per unit) Number of Units Accepted?
Sam Smoothtalk
Offer No. 1 $310 200 Yes
Offer No. 2 $305 150 Yes
Offer No. 3 $295 300 No
Harry Hustler
Offer No. 1 $305 50 Yes
Offer No. 2 $200 250 No
Offer No. 3 $300 100 Yes
Offer No. 4 $330 75 Yes
Gary Giftofgab
Offer No. 1 $305 250 Yes
Offer No. 2 $245 400 No
Offer No. 3 $325 100 Yes
In addition, Ms. Glenda Goodperson, the office assistant manager received an offer from a new distributor for 700 units at $290. She felt this would be advantageous for Pecos and accepted the offer. When Paul Pecos found out about this transaction, he was furious that Ms. Goodperson had violated his decision rule and fired her on the spot. He then cancelled the order with the new distributor.
Overall, Paul was satisfied with the month's sales results. His sales staff had sold 925 units which translated to an annual rate of over 11,000 units. This was 10% above his estimate of 10,000 annual sales.
1. Evaluate Paul Pecos' decision rule.
2. Evaluate Paul Pecos' reaction to Ms. Goodperson's sale.
3. Prepare a contribution margin income statement for the month with two columns: in the first column, show the results following Paul's decision rule. In the second column, show what the results would have been if you chose to revise the decision rule and your revised decision rule had been followed. For simplicity sake, ignore non-manufacturing costs and taxes.
4. Do you have any other recommendations for Paul to improve his operations?
This background material below to help better understand the Model 3 Case Assignment above.If needed
Decision making - relevant costsby Ian Herbert
01 Sep 1998Accounting Technician Scheme
Relevant to Paper C2
In this article Ian Herbert looks at the use of relevant costs in management decision making. The objective of this article is to help you to understand:
? the context of management decision making;
? which costs are relevant to a decision and which costs are not;
? how other factors might influence a decision.
A key feature of management accounting is its focus on the future. Decision making should only consider what will change as a result of implementing a decision, nothing else. In this respect there are a number of ways in which we can view costs.
? Differential costs
? Opportunity costs
? Sunk costs
? Avoidable costs
? Committed costs
? Notional costs
It seems strange that a cost can be anything other than a charge to the organisation that results in a sum of money leaving the bank account. However, if you think about charges such as, depreciation, or a provision for doubtful debts, then these are examples of non-cash costs which help us to evaluate performance over a particular time period more easily. As we shall see, such costs are irrelevant to decision making. Relevant costs translate into future cash flows.
Differential costs
The difference in total cost between alternatives, calculated to assist in decision making. *
These are also referred to as incremental costs, usually when a choice exists between maintaining the status quo or taking some positive action. For example, introducing a bonus system, will entail additional costs but, through better performance, should eventually result in an incremental cash inflow. The Barkington Hospital illustration below, is a good example of differential costs occurring between two alternatives.
Opportunity costs
The value of benefit sacrificed when one course of action is chosen, in preference to an alternative. The opportunity cost is represented by the foregone potential benefit from the best rejected course of action.*
Consider the following example:
Barkington Hospital is reviewing its accommodation requirements. It has some empty buildings on site that could be rented out as small business units for ?10,000 p.a., but it also needs some space for refurbishing hospital furniture over the next 12 months. The total cost of labour and materials for the refurbishment is estimated at ?25,000. It has received a quote from outside contractors to undertake the refurbishment work for ?32,000. What should it do?
The cost of the outside quote is ?32,000
The cost of in-house work is: Labour and materials ?25,000
Plus the opportunity cost
of the rent foregone ?10,000
Total cost ?35,000
The outside quote is cheaper on the basis of the relevant costs. This is because the in-house team would effectively be consuming a resource that has a market value of ?10,000. The differential cost of the in-house option is therefore ?3,000.
How might your decision change in each of the following situations?
a. the in-house workers would have to be made redundant at a cost of ?5,000 if the refurbishment contract was placed outside.
b. the refurbishment could be undertaken in lower grade premises available at a rent of ?6,000 pa.
a. the cost of the outside option increases by ?5,000 to ?37,000 and is therefore now more expensive than the in-house option;
b. the total cost of the in-house work would be:
Labour and materials 25,000
Plus the cost of
hiring premises 6,000
The cost of the external
contract is 32,000
The in-house option is now preferable.
Note: In scenario (b) the benefit of ?10,000 is not shown in the calculation, as rent will now be received in both options: we are only interested in the relative difference between alternatives.
Sunk costs
A past cost not directly relevant in decision making. *
What has Barkington Hospital do if it had already purchased some of the materials for the refurbishment at a cost of ?4,000 and those materials have no alternative use.
The cost of the outside quote is ?32,000
The cost of in-house work is now:
Labour and materials
(?25,000 - ?4,000) ?21,000
Plus the opportunity cost
of the rent foregone ?10,000
Total cost ?31,000
The work should now be done in-house as the incremental cash outflow is less than the money that would be paid to the contractor. Of course, when the Hospital prepares its financial accounts, the cost of labour and materials will be stated as ?25,000. However, for the purpose of making a decision about the future the ?4,000 already incurred for materials is a sunk cost and is therefore not relevant to the decision.
In short term decision making, fixed costs are generally regarded as sunk costs.
Avoidable costs
The specific costs of an activity or sector of a business which would be avoided if that activity or sector did not exist.*
If a factory decides to save money, say by closing a part of the production facilities, it is necessary to examine each cost element in terms of whether that cost can be avoided or not. In the long term, all costs are ultimately avoidable, but in the short term, many costs are not. For example, closing a part of the factory might avoid the cost of heating, lighting and cleaning, although in the short term rent, property taxes, security and maintenance costs would presumably still be incurred.
Committed costs
These costs are similar to sunk costs in that they exist as a result of previous decisions although the 'charge' has yet to be incurred or the cash released.
Imagine that in the course of the deliberations at Barkington Hospital someone had said "but we just can't rent out those buildings or simply use them for workshops, we've just signed a contract to spend ?50,000 on an air conditioning system". Would this make any difference to your decision?
None whatsoever. While situations such as this may be embarrassing in political terms, past costs (and mistakes) should not impact upon the logic of financial decision making. The ?50,000 that has been committed contractually is effectively a sunk cost.
The UK government recently changed the specification of the millennium exhibition dome at Greenwich, London. In doing so they had to pay around ?500,000 in compensation to the contracted suppliers, as the new material is to come from a different firm. The decision apparently made financial sense, as the new material will make a permanent and not a temporary facility. The national newspapers however, printed many stories on the theme of government incompetence resulting in the wastage of public resources.
Notional costs
Notional costs are intended to make internal decision making more realistic by assuming that the cost of all resources consumed reflects the full economic value - usually by applying market prices. Notional charges are typically used to charge responsibility centres with a 'market rent', where buildings have been purchased on a freehold basis. Such a mechanism helps to focus management attention on making best use of space so that surplus space across the whole organisation might then be sold or rented to another user. Notional interest is often charged for the use of internally generated funds.
Other factors
So far, our recommendations to management have been made solely on the basis of financial analysis. In practice, there are usually many other factors, of a qualitative nature, that have to be considered. For example, Barkington Hospital needs to consider the following:
? Who will make a better job of the refurbishment work, the existing in-house team or the external contractor?
? How long might it take to actually get a tenant to rent the buildings?
? Will the hospital workers be required in the long term?
? What effect will the option of redundancy have on the morale of other staff?
? Could the materials already purchased be sold for scrap or to the contractor?
? Could Barkington undertake refurbishment work profitably for other hospitals in the future?
? How reliable is the estimate for the in-house option? Accepting the contractor's quote would not expose Barkington to the risk of inflation.
? Can the delivery timescale be enforced against the contractor? Generally an organisation has more control if their own workers are doing the work.
The end of Mod 3 Case Assignment

This the beginning of Mod 3 Session Long ProjectBELOW

2.Module 3 Session Long Project Assignment below. I need 1 page for this Assignment Below. Kmart is the Company/organization I chose.

By this time, you should have an organization selected and approved for your project. Ichose Kmart
In this module, we are going to have our second application to that project. Identify a decision that has recently been made or will be made in the near future in your organization. Identify two relevant and two non-relevant costs in this decision.
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual. Use KMART
Your report should include
? The name and nature of the organization
? The activity and time period you used
? The inputs you used
? Your results
? Any implications from your results

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