GarrisonSolution_20068Spg

# GarrisonSolution_20068Spg - GarrisonSolution_2008Spg...

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GarrisonSolution_2008Spg Exercise 5-1 (15 minutes) 1. Cups of Coffee Served in a Week 2,000 2,100 2,200 Fixed cost . .................................. \$1,200 \$1,200 \$1,200 Variable cost . .............................. 440 462 484 Total cost . ................................... \$1,640 \$1,662 \$1,684 Cost per cup of coffee served * . ... \$0.820 \$0.791 \$0.765 * Total cost ÷ cups of coffee served in a week 2. The average cost of a cup of coffee declines as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee. Exercise 5-4 (20 minutes) 1. Occupancy- Days Electrical Costs High activity level (August) . .. 2,406 \$5,148 Low activity level (October) . . 124 1,588 Change . .............................. 2,282 \$3,560 Variable cost = Change in cost ÷ Change in activity = \$3,560 ÷ 2,282 occupancy-days = \$1.56 per occupancy-day Total cost (August) . .................................................... \$5,148 Variable cost element (\$1.56 per occupancy-day × 2,406 occupancy-days) . .. 3,753 Fixed cost element . ..................................................... \$1,395

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2. Electrical costs may reflect seasonal factors other than the just the variation in occupancy days. For example, common areas such as the reception area must be lighted for longer periods during the winter than in the summer. This will result in seasonal fluctuations in the fixed electrical costs. Additionally, the fixed costs will be affected by the number of days in a month. In other words, costs like the costs of lighting common areas are variable with respect to the number of days in the month, but are fixed with respect to how many rooms are occupied during the month. Other, less systematic, factors may also affect electrical costs such as the frugality of individual guests. Some guests will turn off lights when they leave a room. Others will not. Exercise 5-11 (20 minutes) 1. Kilometers Driven Total Annual Cost* High level of activity . .......................... 105,000 \$11,970 Low level of activity . .......................... 70,000 9,380 Change . ............................................ 35,000 \$2 ,590 * 105,000 kilometers × \$0.114 per kilometer = \$11,970 70,000 kilometers × \$0.134 per kilometer = \$9,380 Variable cost per kilometer: Change in cost \$2,590 = =\$0.074 per kilometer. Change in activity 35,000 kilometers Fixed cost per year: Total cost at 105,000 kilometers. ...................... \$11,970 Less variable portion: 105,000 kilometers × \$0.074 per kilometer . ... 7,770 Fixed cost per year . ......................................... \$ 4,200
3. Fixed cost . ......................................................... \$ 4,200 Variable cost: 80,000 kilometers × \$0.074 per kilometer . ......... 5,920 Total annual cost . ............................................... \$10,120 Exercise 3-3 (10 minutes) The predetermined overhead rate is computed as follows: Estimated total manufacturing overhead . ........... \$134,000

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## This note was uploaded on 06/23/2008 for the course ACCT 410x taught by Professor Bonner during the Spring '06 term at USC.

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GarrisonSolution_20068Spg - GarrisonSolution_2008Spg...

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