comm 354 sample midterm solution

# Comm 354 sample midterm solution

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Unformatted text preview: ure? Who has the power in the relationship,,, this is a large retailer! Can they actually remove 900 from existing customer base? Or will the units foregone be greater due to order sizes of current customers. Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 4 QUESTION 5 a) Estimate the variable and fixed costs. First step is to remove inflation from the \$630,000 Then calculate new rise/ run \$630,000/1.05 - \$370,000 \$230,000 = \$34.22 #16,700 – 9,980 Fixed portion would be \$600,000 – 34.22(16,700) =\$28,526 non inflated Inflated \$28,526 (1.05)(1.02) \$30,441 NOTE: since the equipment is primarily used for lifting, not travelling, the number of hours is critical and thus hours is used as the cost driver. Also if you calculate it using the KM you get an impossible model (\$200 in costs per km and then total cost of \$1,000,000 in 2002 that exceed the actual total costs for that year). b) The company would like to estimate the total cost of “maintenance” for 2011. Calculate the projected range of maintenance cost for 2011. Cost range for 2011: Low end [\$34.22 (18,000) x [1.05][1.02] \$660 K High end [34.22(20,500) x [1.05][1.02] \$751 K The only cost type used from this estimated model is the variable costs since it does not make sense that any of the insurance is variable. An argument could be made for concluding that some of the fixed costs could be due to maintenance and that the variable cost driver is a combination of cost types. Thus maintenance estimate for 2011 would be these costs plus a portion of the \$28,526. It would not be less than the \$34.22 per hour portion. Prepared by J. Kroeker, 2011 © Sauder School of Business, UBC Page 5 c) A recent analysis shows that the company is nearing capacity of 17,000 hours and 7,000 kilometers. It has determined that they could lease a piece of heavy duty equipment which would annually add 8,500 hours and 3,400 kilometers in capacity. This equipment is ver...
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## This note was uploaded on 01/14/2014 for the course COMM 354 taught by Professor All during the Winter '08 term at The University of British Columbia.

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