work_at_home_soultions_ch11[1]

work_at_home_soultions_ch11[1] - Chapter 11 Cost Behavior,...

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Chapter 11 Cost Behavior, Operating leverage, and Profitability Analysis Exercise 11-1 Requirement Fixed Variable Mixed a. x b. x c. x d. x e. x f. x Exercise 11-2 Requirement Fixed Variable Mixed a. x b. x c. x d. x e. x f. x g. x h. x i. x j. x Exercise 11-3 Total Fixed Cost: 11-1
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Item Cost Depreciation $ 34,000 Officers' salaries 120,000 Long-term lease 42,000 Property taxes 9,000 Total fixed $205,000 Units Produced (a) 4,000 4,500 5,000 Total fixed cost (b) $205,000 $205,000 $205,000 Fixed cost per unit (b ÷ a) $51.25 $45.56 $41.00 Exercise 11-4 Units Produced (a) 5,000 15,000 25,000 Variable cost per unit (b) $8.70 $8.70 $8.70 Total variable cost (a x b) $43,500 $130,500 $217,500 Exercise 11-5 a. March April Units Produced (a) 90 230 Total rent cost (b) $1,500 $1,500 Rent cost per unit (b ÷ a) $16.67 $6.52 Total utility cost (c) $450 $1,150 Utility cost per unit (c ÷ a) $5 $5 b. Since the total rent cost remains unchanged when the number of units produced changes, it is a fixed cost. Since the total utility cost changes in direct proportion with changes in the number of units, it is a variable cost. Exercise 11-6 Number of Units 8,000 10,000 12,000 14,000 Total costs incurred 11-2 a.
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Fixed $48,000 $ 48,000 $ 48,000 $ 48,000 Variable 48,000 60,000 72,000 84,000 Total costs $96,000 $108,000 $120,000 $132,000 Cost per unit Fixed $ 6.00 $ 4.80 $ 4.00 $3.43 Variable 6.00 6.00 6.00 6.00 Total cost per unit $12.00 $10.80 $10.00 $9.43 b. The total cost per unit declines as volume increases because the same amount of fixed cost is spread over an increasingly larger number of units of product. 11-3
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Exercise 11-7 a. Number Attending (a) 2,000 2,500 3,000 3,500 4,000 Total cost of concert (b) $75,000 $75,000 $75,000 $75,000 $75,000 Cost per person (b) ÷ (a) $37.50 $30.00 $25.00 $21.43 $18.75 b. Since the cost of hiring a band remains at $75,000 regardless of the number attending, it is a fixed cost. c. 11-4 0 2,000 2,500 3,000 3,500 4,000 $ 75,000 Total cost Number attending
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Exercise 11-7 (continued) d. Walter’s major business risk is the uncertainty about whether it can generate enough revenue to cover the fixed cost. Walter must pay the $75,000 cost even if no one buys a ticket. Accordingly, there is a potential for Walter to experience a significant financial loss. Since the cost per ticket decreases as volume increases, Walter can sell tickets for less if the band attracts a large crowd. Also, lower ticket prices encourage higher attendance. Walter must set a price that en- courages attendance and produces sufficient revenue to cover the fixed cost and provide a reasonable profit. To a large extent, Walter’s business risk is the result of its cost struc-
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work_at_home_soultions_ch11[1] - Chapter 11 Cost Behavior,...

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