Question

Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-third each year for the next two years. Because Lake has little information about the ability to collect these receivables, it uses the cost recovery method to recognize revenue on these installment sales. In 2017, Lake began operations and sold jet skis with a total price of $1,050,000 that cost Lake $525,000. Lake collected $350,000 in 2017, $350,000 in 2018, and $350,000 in 2019 associated with those sales. In 2018, Lake sold jet skis with a total price of $2,100,000 that cost Lake $1,260,000. Lake collected $700,000 in 2018, $560,000 in 2019, and $560,000 in 2020 associated with those sales. In 2020, Lake also repossessed $280,000 of jet skis that were sold in 2018. Those jet skis had a fair value of $105,000 at the time they were repossessed.

In 2019, Lake would recognize realized gross profit of:

Answer 1

To fill in Table 7.16 for total cost, average variable cost, average total cost, and marginal cost, we need additional information about the quantity of skis produced and corresponding costs.

Step-by-step explanation:

To fill in Table 7.16 for total cost, average variable cost, average total cost, and marginal cost, we need additional information such as the quantity of skis produced and the corresponding total costs.

Without this information, we cannot accurately calculate these cost measures. However, I can provide you with an explanation of these cost measures:

• Total cost: This refers to the sum of fixed costs and variable costs. Fixed costs are costs that do not change with the level of production, while variable costs change based on the quantity of skis produced.
• Average variable cost: This is calculated by dividing the total variable cost by the quantity of skis produced. It represents the cost per unit of production that varies with the level of production.
• Average total cost: This is calculated by dividing the total cost by the quantity of skis produced. It represents the cost per unit of production, including both fixed and variable costs.
• Marginal cost: This is the additional cost incurred by producing one more unit of ski. It is calculated by finding the change in total cost when the quantity of skis produced increases by one.