ACCt5060 Homework 2

| June 9, 2016

Question
1. Computing Average Unit Costs
The total monthly operating costs of Chili To Go are:

$8,000+ $0.30X

where

X = servings of chili

(a) Determine the average cost per serving at each of the following monthly volumes: 100; 1,000; 5,000; and 10,000.

Round answers to one decimal place.

Volume

Average Unit Cost

100

$Answer

1,000

$Answer

5,000

$Answer

10,000

$Answer

(b) Determine the monthly volume at which the average cost per serving is $0.70.
Answer
servings of chili

Automatic versus Manual Processing
Photo Station Company operates a printing service for customers with digital cameras. The current service, which requires employees to download photos from customer cameras, has monthly operating costs of $6,000 plus $0.20 per photo printed. Management is evaluating the desirability of acquiring a machine that will allow customers to download and make prints without employee assistance. If the machine is acquired, the monthly fixed costs will increase to $10,000 and the variable costs of printing a photo will decline to $0.04 per photo.

(a) Determine the total costs of printing 20,000 and 50,000 photos per month.

Units

Current Process

Proposed Process

20,000

$Answer

$Answer

50,000

$Answer

$Answer

(b) Determine the monthly volume at which the proposed process becomes preferable to the current process.
Answer
units

2. High-Low Cost Estimation
Assume the local DHL delivery service hub has the following information available about fleet miles and operating costs:

Year

Miles

Operating Costs

2012

556,000

$182,000

2013

684,000

214,000

Use the high-low method to develop a cost-estimating equation for total annual operating costs. (Let X = annual fleet miles.)

Total annual costs = Answer
+ Answer
* X

3. Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation
Assume a Papa John’s restaurant has the following information available regarding costs at representative levels of monthly sales:

Monthly sales in units

5,000

8,000

10,000

Cost of food sold

$10,000

$16,000

$20,000

Wages and fringe benefits

5,150

5,240

5,300

Fees paid delivery help

1,150

1,840

2,300

Rent on building

1,400

1,400

1,400

Depreciation on equipment

800

800

800

Utilities

700

760

800

Supplies (soap, floor wax, etc.)

250

340

400

Administrative costs

1,200

1,200

1,200

Total

$20,650

$27,580

$32,200

(a) Identify each cost as being variable, fixed, or mixed.

Cost of food sold
Answer

Wages and fringe benefits
Answer

Fees paid delivery help
Answer

Rent on building
Answer

Depreciation on equipment
Answer

Utilities
Answer

Supplies (soap, floor wax, etc.)
Answer

Administrative costs
Answer

(b) Use the high-low method to develop a schedule identifying the amount of each cost that is fixed per month or variable per unit. Total the amounts under each category to develop an equation for total monthly costs.

Round variable cost answers to two decimal places.

Fixed Costs

Variable Costs

Cost of food sold

Answer

Answer

Wages and fringe benefits

Answer

Answer

Fees paid delivery help

Answer

Answer

Rent on building

Answer

Answer

Depreciation on equipment

Answer

Answer

Utilities

Answer

Answer

Supplies (soap, floor wax, etc.)

Answer

Answer

Administrative costs

Answer

Answer

Total costs equation

Answer

Answer

(c) Predict total costs for a monthly sales volume of 9,400 units.
$Answer

5. Developing an Equation from Average Costs
The America Dog and Cat Hotel is a pet hotel located in Las Vegas. Assume that in March, when dog-days (occupancy) were at an annual low of 400, the average cost per dog-day was $18. In July, when dog-days were at a capacity level of 4,000, the average cost per dog-day was $9.

(a) Develop an equation for monthly operating costs. (Let X = dog-days per month)
Total cost = Answer
+ Answer
* X

(b) Determine the average cost per dog-day at an annual volume of 24,000 dog-days.
$Answer

6. Multiple Cost Drivers
Scottsdale Ltd. manufactures a variety of high-volume and low-volume products to customer demand. Presented is information on 2013 manufacturing overhead and activity cost drivers.

Level

Total Cost

Units of Cost Driver

Unit

$ 500,000

10,000 machine hours

Batch

100,000

500 customer orders

Product

200,000

25 products

Product X1 required 2,000 machine hours to fill 10 customer orders for a total of 8,000 units.

(a) Assuming all manufacturing overhead is estimated and predicted on the basis of machine hours, determine the predicted total overhead costs to produce the 8,000 units of product X1.
$Answer

(b) Assuming manufacturing overhead is estimated and predicted using separate rates for machine hours, customer orders, and products (a multiple-level cost hierarchy), determine the predicted total overhead costs to produce the 8,000 units of product X1.
$Answer

(c) Calculate the error in predicting manufacturing overhead using machine hours versus using multiple cost drivers. Indicate whether the use of only machine hours results in overpredicting or underpredicting the costs to produce 8,000 units of product X1.
$Answer
Answer

(d) Determine the error in the prediction of X1 batch-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the batch-level costs of product X1.
$Answer
Answer

(e) Determine the error in the prediction of X1 product-level costs resulting from the use of only machine hours. Indicate whether the use of only machine hours results in overpredicting or underpredicting the product-level costs of product X1.
$Answer
Answer

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