Suppose that a paper mill is located on a river. Making paper also produces waste, which runs off into the river and pollutes the downstream area. The people who live in the downstream area are not consumers of the paper that the plant produces. The production of paper involves an external cost of $2 per ream of paper produced. If neither the firm nor consumers include the external cost in their consumption or production decisions, the resulting equilibrium will involve overproduction of paper, relative to the quantity that would maximize social surplus. One way to correct the negative externality would be to impose a tax on consumers. If the tax is imposed on consumers, , which will cause market price to and quantity to . Alternatively, the government could impose a tax on producers. If the tax is imposed on producers, , which will cause market price to and quantity to . Assuming that the tax is identical in either case and is equal to the external cost, which of the following statements is not true?

a. The externality will be Internalized In elther case.
b. The new market quality will be socially optimal in elther case
c. The effect on market price will be the same in either case.
d. Both producers and consumers will be worse off In elther case.
e. The effect on market quantity will be the same In elther case.

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Zachary company produces commercial gardening equipment. since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. the costs and cost drivers associated with the four overhead activity cost pools follow: activities unit level batch level product level facility level cost $ 64,800 $ 27,730 $ 15,000 $ 154,000 cost driver 2,400 labor hrs. 47 setups percentage of use 11,000 units production of 780 sets of cutting shears, one of the company’s 20 products, took 240 labor hours and 7 setups and consumed 15 percent of the product-sustaining activities. required: (a) had the company used labor hours as a company wide allocation base, how much overhead would it have allocated to the cutting shears? (b) how much overhead is allocated to the cutting shears using activity-based costing? (c) compute the overhead cost per unit for cutting shears first using activity-based costing and then using direct labor hours for allocation if 780 units are produced. if direct product costs are $150 and the product is priced at 30 percent above cost for what price would the product sell under each allocation system? (d) assuming that activity-based costing provides a more accurate estimate of cost, indicate whether the cutting shears would be over- or underpriced if direct labor hours are used as an allocation base. explain how over-or undercosting can affect vaulker's profitability. (e) comment on the validity of using the allocated facility-level cost in the pricing decision. should other costs be considered in a cost- plus pricing decision? if so, which ones? what costs would you include if you were trying to decide whether to accept a special order?

Solomon chemical company makes three products, b7, k6, and x9, which are joint products from the same materials. in a standard batch of 320,000 pounds of raw materials, the company generates 70,000 pounds of b7, 150,000 pounds of k6, and 100,000 pounds of x9. a standard batch costs $3,840,000 to produce. the sales prices per pound are $10, $14, and $20 for b7, k6, and x9, respectively. (a) allocate the joint product cost among the three final products using weight as the allocation base. (b) allocate the joint product cost among the three final products using market value as the allocation base. (c) allocate the joint product cost among the three final products using weight as the allocation base.