Singer Inc. is a retailer operating in Edmonton, Alberta. Singer uses the perpet
ID: 2374618 • Letter: S
Question
Singer Inc. is a retailer operating in Edmonton, Alberta. Singer uses the perpetual inventory method. All sales returns from customers result in the goods being returned to inventory. (Assume that the inventory is not damaged.) Assume that there are no credit transactions; all amounts are settled in cash. You are provided with the following information for Singer Inc. for the month of January 2012.Date Description Quantity Unit Cost or Selling Price Dec. 31 Ending inventory 272 $34 Jan. 2 Purchase 170 37 Jan. 6 Sale 306 68 Jan. 9 Sale return 17 68 Jan. 9 Purchase 128 41 Jan. 10 Purchase return 26 41 Jan. 10 Sale 85 77 Jan. 23 Purchase 170 43 Jan. 30 Sale 221 82 Singer Inc. is a retailer operating in Edmonton, Alberta. Singer uses the perpetual inventory method. All sales returns from customers result in the goods being returned to inventory. (Assume that the inventory is not damaged.) Assume that there are no credit transactions; all amounts are settled in cash. You are provided with the following information for Singer Inc. for the month of January 2012.
Date Description Quantity Unit Cost or Selling Price Dec. 31 Ending inventory 272 $34 Jan. 2 Purchase 170 37 Jan. 6 Sale 306 68 Jan. 9 Sale return 17 68 Jan. 9 Purchase 128 41 Jan. 10 Purchase return 26 41 Jan. 10 Sale 85 77 Jan. 23 Purchase 170 43 Jan. 30 Sale 221 82 Date Description Quantity Unit Cost or Selling Price
Calculate average cost for each unit. (Round answers to 3 decimal places, e.g. 5.125.) Jan. 1 Jan. 2 Jan. 6 Jan. 9 Jan. 9 Jan. 10 Jan. 10 Jan. 23 Jan. 30 Singer Inc. is a retailer operating in Edmonton, Alberta. Singer uses the perpetual inventory method. All sales returns from customers result in the goods being returned to inventory. (Assume that the inventory is not damaged.) Assume that there are no credit transactions; all amounts are settled in cash. You are provided with the following information for Singer Inc. for the month of January 2012.
Date Description Quantity Unit Cost or Selling Price Dec. 31 Ending inventory 272 $34 Jan. 2 Purchase 170 37 Jan. 6 Sale 306 68 Jan. 9 Sale return 17 68 Jan. 9 Purchase 128 41 Jan. 10 Purchase return 26 41 Jan. 10 Sale 85 77 Jan. 23 Purchase 170 43 Jan. 30 Sale 221 82
Explanation / Answer
AVERAGE COST:
Average cost is a general notion of the per unit cost incurred in theproduction of a good or service. It is specified as the total cost divided by the quantity of output. Average cost plays a key role in the short-run production decision by a firm when evaluated against the price, which is per unit revenue. A comparison between per unit revenue (price) and per unit cost (average cost) indicates whether a firm is making a profit, incurring a loss, or should shut down production operations.
A generic formula for calculating average cost is specified as:
This equation can be turned on its head to calculate total cost from average cost:
Short-run production analysis makes use of three average cost measures--average total cost, average fixed cost, and average variable cost. Each is derived from a corresponding total--total cost, total fixed cost, andtotal variable cost.
Average cost is perhaps most important for short-run production analysis, especially when serious talk turns to the topic of profit. In terms of totals, profit is the difference between total revenue and total cost. However, profitability can also be identified per unit of output. In this case, a comparison between price (the revenue received for each unit sold) and average cost is highly informative. If price exceeds average total cost, then profit is received for each unit sold. If price is less than average total cost, then each unit is sold at a loss.
This price-average cost comparison is just the sort of thing that can keep a firm from bankruptcy. In fact, those firms that have some degree of control over price, frequently set prices based on average cost. The most common techniques used are mark-up pricing or cost-plus pricing, which ensure that firms cover cost and receive a profit on each unit sold.
Suppose, for example, that the average cost incurred by Waldo's TexMex Taco World in the production of Super Deluxe TexMex Gargantuan Tacos is $3. If each Super Deluxe TexMex Gargantuan Taco sells for $3.50, then Waldo's TexMex Taco World receives $0.50 per taco. In all likelihood, Waldo's TexMex Taco World sets the price at $3.50 for their Super Deluxe TexMex Gargantuan Tacos by adding a "reasonable" fifty-cent per taco profit to the three dollar per taco cost.
Per unit profitability is not the only information that can be garnered with a comparison of price and average cost. In fact, firms face three short-run alternatives revealed by price and average cost.
average cost = total costquantity of output