Denise Seals - Week Two Excerise

Denise Seals - Week Two Excerise - Denise Seals Managerial...

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Denise Seals Managerial Accounting MBAC5213OL Dr. Lemler March 8, 2009 Week 2 – Exercises 3.23. Method of Least Squares 1. Classify each cost as fixed, variable, or mixed, using hours of professional service as the activity driver. ________________________________120 Professional Hours 150 Professional hours Salaries: Senior accountant $ 2,500 $ 2,500 F Office assistant 1,200 1,200 F Internet and software subscriptions 700 850 M Consulting by senior partner 1,200 1,500 V Depreciation (equipment) 2,400 2,400 F Supplies 905 1,100 M Administration 500 500 F Rent (offices) 2,000 2,000 F Utilities 332 365 M _______________________________________________________________________ _ 2. Use the high-low method to separate the mixed costs into their fixed and variable components. First mixed cost: Internet and software subscriptions Cost Hours High $ 850 150 Low 700 120 Change $ 150 30 Variable = Change in cost Change in hours Variable = $ 150 = $ 5.00 per hour 30 Fixed = Total cost at high - Variable cost at high
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Fixed = $ 850 - ( $5.00 X 150 hours ) Fixed = $ 850 - $750 Fixed = $ 100 Second mixed cost: Supplies Cost Hours High $ 1,100 150 Low 905 120 Change $ 195 30 Variable = Change in cost Change in hours Variable = $ 195 = $ 6.50 per hour 30 Fixed = Total cost at high - Variable cost at high Fixed = $ 1,110 - ( $6.50 X 150 hours ) Fixed = $ 1,110 - $975 Fixed = $ 125 Third mixed cost: Utilities Cost Hours High $ 365 150 Low 332 120 Change $ 33 30 Variable = Change in cost Change in hours Variable = $ 33 = $ 1.10 per hour 30 Fixed = Total cost at high - Variable cost at high Fixed = $ 365 - ( $1.10 X 150 hours ) Fixed = $ 365 - $ 165 Fixed = $ 200
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3. Luz Mondragon, the chief paraprofessional of the clinic, has estimate that the clinic will average 140 professional hours per month. If the clinic is to be operated as a nonprofit organization, how much will it need to charge per professional hours? How much of this charge is variable? How much is fixed? ________________________________ Fixed Unit Variable Cost Salaries: Senior accountant $ 2,500 $ ------ Office assistant 1,200 ------ Internet and software subscriptions 100 5.00 Consulting by senior partner ------ 10.00 Depreciation (equipment) 2,400 ------ Supplies 125 6.50 Administration 500 ------ Rent (offices) 2,000 ------ Utilities 200 1.10 Total cost $ 9,025 $ 22.60 _______________________________________________________________________ _ Y = $ 9,025 + ( $ 22.60 x X ) Y = $ 9,025 + ( $ 22.60 x 140 hours ) Y = $ 9,025 + $ 3, 164 Y = $ 12,189 Charge per hour = $ 12,189 = $ 87.06 per hour 140 Fixed charge per hour = $ 9,025 = $ 64.46 per hour 140 Variable charge per hour = $ 22.60
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4. Suppose the clinic averages 170 professional hours per month. How much would need to be charged per hour for the clinic to cover its costs? Explain why the per-hour decreased as the activity output increased. Charge per hour
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Denise Seals - Week Two Excerise - Denise Seals Managerial...

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