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Ch2_-_CD_Solutions

# Ch2_-_CD_Solutions - MGTB03 Chapter 2 Solutions to Class...

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MGTB03 Chapter 2 – Solutions to Class Discussion Questions 2.16 Account Analysis Method, Cost Functions – Toonie Car Wash Total Costs: Var % Variable Fixed Direct Materials 26,000 100% 26,000 0 Direct Labour 38,000 100% 38,000 0 Office Support 12,000 30% 3,600 8,400 Utilities 40,000 20% 8,000 32,000 Rent 42,000 0 42,000 Amortization 32,600 0 32,600 75,600 115,000 A. Variable cost per car wash = 75,600/14,400 washes = 5.25 Total fixed costs = 115,000 Cost Formula TC = 115,000 + 5.25*number of car washes B. If Toonie has 16,800 car washes in 2010 TC = 115,000 + 5.25 * 16,800 = 203,200 C. Total Cost Variable Rate Variable portion VC/unit increase New VC/unit New VC at 18,000 washes New FC Direct Materials 26,0 00 100% 26,000 1.81 1.0 3 1.86 33, 475 - Direct Labour 38,0 00 100% 38,000 2.64 1.0 4 2.74 49, 400 - Office Support 12,0 00 30% 3,60 0 0.25 1.0 0 0.25 4, 500 8,4 00 Utilities 40,0 00 20% 8,00 0 0.56 1.0 0 0.56 10, 000 32,00 0 Rent 42,0 00 0% - - 1.0 4 43,68 0 Amortization 32,6 00 0% - - 1.0 5 34,23 0 75,600 5.41 97, 375 118,31 0 1

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Variable Cost / unit = 5.41 Total Fixed Cost = \$ 118,310 Cost Equation TC = 118,310 + 5.41 * number of car washes = 118,310 + 5.41 * 18,000 = \$ 215,690 2.26 Engineered Estimate of Cost, Cost-Based Price - Hamburger Haven Following are calculations for the cost per unit of each ingredient and the cost of plain and cheeseburgers: Cheeseburger Cost per Unit Plain With Everything 1. Hamburger patty (\$1.69/7) \$0.2414 \$0.2414 \$0.2414 2. Hamburger bun (\$1.29/12) 0.1075 0.1075 0.1075 3. Dill pickles [(\$8.95/2,000) * 4] 0.0179 0.0179 4. Tomato (\$.69/8) 0.0863 0.0863 5. Lettuce (\$.59/40) 0.0148 0.0148 6. Mayonnaise [\$1.49/(16 x 4)] 0.0233 0.0233 7. Mustard (\$.79/150) 0.0053 0.0053 8. Catsup (\$.99/50) 0.0198 0.0198 9. Cheese (\$2.59/16) 0.1619 0.1619 10. Onions (\$.15/45) 0.0033 0 .0033 \$0 .3489 \$0 .6815 A. Cost of plain burger = \$0.3489 (calculated above) B. Cost of burger with everything except cheese = (\$0.6815 - \$0.1619) = \$0.5196 Suggested selling price: 300% * \$0.5195 = \$1.56 C. Selling price of cheeseburger with everything: 300% * \$0.6815 = \$2.04 Therefore, the price of the plain hamburger should be: \$2.04 - \$0.25 = \$1.79 Some students will view this higher price as "unfair." However, there is no moral obligation to maintain a 300% mark-up on each item. It is just a general guideline. Market forces will dictate achievable prices.
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Ch2_-_CD_Solutions - MGTB03 Chapter 2 Solutions to Class...

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