Suppose two local start-ups are raising funding by issuing shares of equity at $1,000 per share. One start-up is a whiskey distillery; the other is a beer brewery. You estimate the expected returns on your investment to be 50% in both cases. You also believe that the likelihood of being rewarded $10,000 per share in the next year is greater with the distillery than with the brewery. Suppose you can choose only one investment, and that this would be your only investment. For example, assume you are an entrepreneur and that you would be invested 100% in only one of these start-ups. Which investment do you prefer to make, the distillery or the brewery? Explain your logic. Vote that the usual assumptions apply, namely that you are risk averse, making optimal decisions, and the payoffs are normally distributed. Suppose you hold a portfolio of many other risky assets, and that this would be your N + 1 investment. Then which investment do you prefer to make, the distillery or the brewery?

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?