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Unformatted text preview: INSTRUCTION: Answer all the questions given. QUESTION 1 The Economics of Higher Education The “baby bust” of the 1960s and early 1970s resulted in the number of college-age 18- and 19- year-olds contrasting sharply from 1980 to 1993. The number of graduating high school seniors peaked in 1979 and declined to a low of 6.9 million in 1992, a drop of nearly 40%. Throughout the eighties, tuition at private and public universities rose at an average of 9% per year, a figure far above the rise in household family incomes. Then, the demographics began to reverse themselves: the number of 18- and 19-year-olds began to increase in 1996 and will continue until they peak in 2010 at about 9.3 million for nearly a 33% increase in the college-eligible population. The four-year cost of attending a private college now often exceeds $100,000 -including room and board. 1. If tuition and room and board costs increase at the rate of 9% per year, what will four years’ tuition at a private college cost in 10 years? How affordable will a college education be at this level? 2. What is the cost of adding an extra student to a typical class? Explain this in terms of the cost structure of a university. 3. After two decades of almost uninterrupted expansion, the “baby bust” enrollment drop left many colleges with considerable underutilized capacity. What impact will increasing enrollment and economics of scale have on cost and tuition? 4. Which colleges do you expect will be helped the most by increasing enrollments-public or private? [10 marks] QUESTION 2 Developing Standard Costs ColdKing Company is a small producer of fruit-flavored frozen desserts. For many years, ColdKing’s products have had strong regional sales on the basis of brand recognition; however, other companies have begun marketing similar products in the area, and price competition has become increasingly intense. John Wakefield, the company’s controller, is planning to implement a standard cost system for ColdKing and has gathered considerable information from his co-workers on production and material requirements for ColdKing’s products. Wakefield believes that the use of standard costing will allow ColdKing’s to improve cost control and make better pricing decisions. ColdKings’s most popular product is raspberry sherbet. The sherbet is produced in 10-gallon batches, and each batch requires 6 quarts of good dragon fruit. The fresh dragon fruit are sorted by hand before they enter the production process. Because of imperfections in the dragon fruit and normal spoilage, 1 quart of berries is discarded for every 4 quarts of acceptable berries. Three minutes is the standard direct labor time for the sorting that is required to obtain 1 quart of acceptable dragon fruit. The acceptable dragon fruit are then blended with other ingredients; blending requires 12 minutes of direct labor time per batch. After blending, the sherbet is packaged in quart containers. Wakefield has gathered the following pricing information:in quart containers....
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This note was uploaded on 05/13/2011 for the course ECON 101 taught by Professor Meonk during the Spring '11 term at Abu Dhabi University.
- Spring '11