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Solution to Chapter 5 HW

# Solution to Chapter 5 HW - BE 5.1 1 Cups of Coffee Served...

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BE 5.1 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 Average 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. BE5.2 1. \$0 \$10,000 \$20,000 \$30,000 \$40,000 \$50,000 \$60,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 P r o c e s s i n g   C o s t Unit Produced Y X

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2. The approximate monthly fixed cost is \$30,000—the point where the line intersects the cost axis. The variable cost per unit processed can be estimated using the 8,000-unit level of activity, which falls on the line: Total cost at an 8,000-unit level of activity ............................................... \$46,000 Less fixed costs ....................................................................................... 30,000 Variable costs at an 8,000-unit level of activity ........................................ \$16,000 \$16,000 ÷ 8,000 units = \$2 per unit Therefore, the cost formula is \$30,000 per month plus \$2 per unit processed. BE 5.3 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 2. Electrical costs may reflect seasonal factors other than 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.
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Solution to Chapter 5 HW - BE 5.1 1 Cups of Coffee Served...

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