Ashford BUS 640 week 1 Assignment Exercises

Week One Exercises

Chapter 1

Applied Problem 1

At the beginning of the year, an audio engineer quit his job and gave up a salary of $175,000 per year in order to start his own business, Sound Devices, Inc. The new company builds, installs, and maintains custom audio equipment for businesses that require high-quality audio systems. A partial income statement for Sound Devices, Inc., is shown below:

Revenues                                                                                    2010

 Revenue from sales of product and services             $970,000

Operating costs and expenses                                                

Cost of products and services sold                             $355,000

Selling expenses                                                          $155,000

Administrative expenses                                             $ 45,000

Total operating costs and expenses                 $555,000

Income from operations                                                          $415,000

Interest expense (bank loan)                                       $ 45,000

Legal expenses to start business                                             $ 28,000

Income taxes                                                                           $165,000

Net income                                                                              $177,000

To get started, the owner of Sound Devices spent $100,000 of his personal savings to pay for some of the capital equipment used in the business. In 2010, the owner of Sound Devices could have earned a 15 percent return by investing in stocks of other new businesses with risk levels similar to the risk level at Sound Devices.

a. What are the total explicit, total implicit, and total economic costs in 2010?

b. What is accounting profit in 2010?

c. What is economic profit in 2010?

d. Given your answer in part c, evaluate the owner’s decision to leave his job to start Sound Devices.

Chapter 2

Applied Problem 2.

Florida Citrus Mutual, an agricultural cooperative association for citrus growers in Florida, needs to predict what will happen to the price and output of Florida oranges under the conditions below. What are your predictions? For each part, sketch a graph showing the appropriate demand and supply analysis.

a. A major freeze destroys a large number of the orange trees in Florida.

b. The scientists in the agricultural extension service of the University of Florida discover a way to double the number of oranges produced by each orange tree.

            c. The American Medical Association announces that drinking orange juice can reduce the risk of heart attack.

d. The price of Florida grape fruit falls.

Applied Problem 4.

Rising jet fuel prices recently led most major U.S. airlines to raise fares by approximately 15 percent. Explain how this substantial increase in airfares would affect the following:

1. The demand for air travel.

2.  The demand for hotels.

3.  The demand for rental cars.

4.  The supply of overnight mail.