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Chapter 20: Q2SE (page 1120)

Identifying variable, fixed, and mixed costs Holly鈥檚 Day Care has been in operation for several years. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of students enrolled.

1. Building rent.

2. Toys.

3. Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled.

4. Afternoon snacks.

5. Lawn service contract at $200 per month.

6. Holly鈥檚 salary.

7. Wages of afterschool employees.

8. Drawing paper for students鈥� artwork.

9. Straight-line depreciation on furniture and playground equipment.

10. Fee paid to security company for monthly service.

Short Answer

Expert verified
  1. Fixed
  2. Fixed
  3. Mixed
  4. Variable
  5. Fixed
  6. Fixe
  7. Variable
  8. Variable
  9. Fixed
  10. Fixed

Step by step solution

01

Meaning of variable, fixed, and mixed cost

Every company has three types of costs variable, fixed, and mixed. Variable cost remains constant on a per unit basis. Fixed costs stays constant in the total amount. The combination of variable and fixed costs is a mixed cost.

02

Classification of costs

Costs

Types of Costs

Building Rent

Fixed

Toys

Fixed

Compensation of the office manager, who receives a salary plus a bonus based on number of students enrolled.

Mixed

Afternoon snacks

Variable

Lawn service contract at $200 per month.

Fixed

Holly鈥檚 salary.

Fixed

Wages of afterschool employees.

Variable

Drawing paper for students鈥� artwork.

Variable

Straight-line depreciation on furniture and playground equipment.

Fixed

Fee paid to security company for monthly service.

Fixed

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Most popular questions from this chapter

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters鈥檚 total fixed costs are $27,500.

S20-16 Calculating breakeven point for two products

Using the Wild Waters Swim Park information presented, do the following tasks.

Requirements

1. Compute the weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

England Productions performs London shows. The average show sells 1,300 tickets at\(60 per ticket. There are 175 shows per year. No additional shows can be held as thetheater is also used by other production companies. The average show has a cast of65, each earning a net average of \)340 per show. The cast is paid after each show. Theother variable cost is a program-printing cost of \(8 per guest. Annual fixed costs total\)728,000.

Requirements

1. Compute revenue and variable costs for each show.

2. Use the equation approach to compute the number of shows England Productionsmust perform each year to break even.

3. Use the contribution margin ratio approach to compute the number of showsneeded each year to earn a profit of $5,687,500. Is this profit goal realistic? Giveyour reasoning.

4. Prepare England Productions鈥檚 contribution margin income statement for175 shows performed in 2018. Report only two categories of costs: variableand fixed.

Owner Shan Mu is considering franchising her Noodles by Murestaurant concept. She believes people will pay \(10.00 for a large bowl ofnoodles. Variable costs are \)5.00 per bowl. Mu estimates monthly fixed costsfor a franchise at \(9,000.

Requirements

1. Use the contribution margin ratio approach to find a franchise鈥檚 breakevensales in dollars.

2. Mu believes most locations could generate \)61,500 in monthly sales. Isfranchising a good idea for Mu if franchisees want a minimum monthlyoperating income of $21,000? Explain your answer.

Question: This problem continues the Piedmont Computer Company situation from Chapter 19. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Average fixed costs per month are \(156,000.

Requirements

1. What is the number of units that must be sold each month to reach the breakeven point?

2. If the company currently sells 945 units per month, what is the margin of safety in units and dollars?

3. If Piedmont Computer Company desires to make a profit of \)15,000 per month, how many units must be sold?

4. Piedmont Computer Company thinks it can restructure some costs so that fixed costs will be reduced to \(90,000 per month, but the weighted-average variable cost per unit will increase to \)525 per unit. What is the new breakeven point in units? Does this increase or decrease the margin of safety? Why or why not?

Question: What is target profit?
See all solutions

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