AC 2-1, 2-2, 2-3 Homework

Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $60,000. If the estimated number of students increase by 10%, net income will increase by:

25%

Based on the behavior shown in the following table, which of the following is a variable cost? Units Produced 2 3 4 5 a.Cost Per Unit of Materials 500 500 500 500 b.Cost Per Unit of Labor 500 333 250 200 c.Total Utilities Cost 4,500 4,500 4,500 4,500

Cost Per Unit of Materials

Elegant Dogs and Dazzling Dogs are competing canine grooming salons. Each company currently serves 4,500 customers per year. Both companies charge $35 to groom a dog. Elegant Dogs pays its dog groomers fixed salaries. Salary expense totals $45,000 per year. Dazzling Dogs pays its groomers $10 per dog groomed. Elegant Dogs lures 2,000 customers from Dazzling Dogs by lowering its grooming price to $25. Dazzling Dogs maintains its $35 price. Which of the following is true?

Dazzling Dogs' profits will decrease by more than Elegant Dogs' profits will increase.

Fran Company is currently operating profitably. The company has a fixed cost structure. Based on this information which of the following statements is true?

If volume increases by 20%, profitability will increase by more than 20%.

Tanaka Company's cost and production data for two recent months included the following: March April Production (units) 300 600 Rent $1,800 $1,800 Utilities $600 $1,200 Required a. Separately calculate the rental cost per unit and the utilities cost per unit for both March and April. b. Identify which cost is variable and which is fixed.

March April a. Rent cost per unit = Total rent cost / units produced March $1,800 / 300 = $6 April $1,800 / 600 = $3 a. Utility cost per unit = Total utility cost / units produced March $600 / 300 = $2 April $1,200 / 600 = $2 b. Rent cost = fixed cost Utility cost = variable cost

Leach Trophies makes and sells trophies it distributes to little league ballplayers. The company normally produces and sells between 6,000 and 12,000 trophies per year. The following cost data apply to various activity levels: Required Complete the preceding table by filling in the missing amounts for the levels of activity shown in the first row of the table. (Round "Cost per unit" answers to 2 decimal places.)

Number of Trophies 6,000 8,000 10,000 12,000 Total costs incurred Fixed $60,000 $60,000 $60,000 $60,000 Variable 60,000 80,000 100,000 120,000 Total costs $120,000 $140,000 $160,000 $180,000 Cost per unit Fixed $10.00 $7.50 $6.00 $5.00 Variable 10.00 10.00 10.00 10.00 Total cost per trophy $20.00 $17.50 $16.00 $15.00

A company that has only variable cost cannot benefit from operating leverage.

True

A fixed cost structure has more risk of volatile changes in net income than a company with a variable cost structure.

True

As volume decreases fixed cost per unit increases.

True

Fanning Corporation incurs the following annual fixed costs: Item Cost Depreciation $80,000 Officers' salaries 190,000 Long-term lease 42,000 Property taxes 48,000 Required Determine the total fixed cost per unit of production, assuming that Fanning produces 4,000, 4,500, or 5,000 units.

Units Produced (a) $360,000 / 4,000 = $90 $360,000 / 4,500 = $80 $360,000 / 5,000 = $72

The following variable production costs apply to goods made by O'Brien Manufacturing Corporation: Item Cost per Unit Materials $6.00 Labor 3.00 Variable overhead 3.50 Total $12.50 Required Determine the total variable production cost, assuming that O'Brien makes 4,000, 8,000, or 12,000 units.

Units Produced (a)4,000 x $12.50 = $50,000 8,000 x $12.50 = $100,000 12,000 x $12.50 = $150,000

The following income statements illustrate different cost structures for two competing companies: Income Statements Hill Creek Number of customers (a) 200 200 Sales revenue (a × $200)$40,000 $40,000 Variable cost (a × $140) N/A (28,000) Variable cost (a × $0) 0 N/A Contribution margin 40,000 12,000 Fixed cost (28,000) 0 Net income$12,000 $12,000 Required a. Reconstruct Hill's income statement, assuming that it serves 400 customers when it lures 200 customers away from Creek by lowering the sales price to $120 per customer. b. Reconstruct Creek's income statement, assuming that it serves 400 customers when it lures 200 customers away from Hill by lowering the sales price to $120 per customer.

a. HILL COMPANY Income Statement Sales revenue$48,000 Variable cost Contribution margin$48,000 Fixed cost(28,000) Net income (loss)$20,000 b. CREEK COMPANY Income Statement Sales revenue$48,000 Variable cost(56,000) Contribution margin$(8,000) Fixed cost Net income (loss)$(8,000)

Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $60,000. If the estimated number of students decreases by 10%, net income will

decrease by 25%

At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of customers at a particular hot dog stand, the depreciation cost is

fixed

The graph below depicts Dove Company's monthly warehouse rental cost. Based on the graph, the rental cost is a

fixed cost

Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable operating expenses. Based on this information

the company's gross margin is $100,000, while its contribution margin is $60,000.

Assume that a company incurs a mixture of fixed and variable product costs; and that all of its operating expenses are fixed. Finally, assume that the company earns a profit by making and selling 1,000 units of product. Under these conditions

the contribution margin will be greater than the gross margin.

Assuming sales equals production, and beginning and ending inventories are zero, The amount of net income determined for an accounting period will be the same regardless of whether the income statement is prepared under a contribution margin format used in managerial accounting or the product costing format use in financial accounting. This statement is

true

At lunchtime, Pete's Chilly Dogs sells hot dogs, chips, and soft drinks from five portable hot dog carts stationed on busy street corners. The depreciation cost on the carts is $1,000 per year for each cart. The company buys supplies (hot dogs, chips, cups, napkins) as needed. The 5 cart operators are each paid $8,000 per year plus 5% of sales revenue. Relative to the number of hot dog carts, the depreciation cost is

variable

The contribution margin is determined by subtracting

variable product and variable period cost from sales.

At a production and sales level of 3,000 units, Bastion Company incurred $60,000 of fixed cost and $36,000 of variable cost. When 4,000 units of product are produced and sold the company's cost per unit is:

$27 Variable cost per unit = $36,000 ÷ 3,000 units = $12. Total cost at 4,000 units x $12 = $48,000 + Fixed cost $60,000 = $108,000 Cost per unit = $108,000 ÷ 4,000 units = $27 per unit

The following information was drawn from the accounting records of Dark Night, Inc Income Statement Sales Revenue (250 @ $600 per unit)$150,000 Cost of Goods Sold: Variable (250 @ $300 per unit) (75,000) Gross Margin 75,000 Sales Commissions (250 @ $20) (5,000) Fixed Period Expenses (9,000) Net Income$61,000 Based on this information Dark Night's contribution margin is:

$70,000. Revenue − Variable Cost = Contribution Margin: $150,000 − $75,000 − $5,000 = $70,000.