Thus we must serve 1500 cases a year to break even the

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Unformatted text preview: David W. Young • Management Accounting for Managers • Chapter 2 Page 27 Copyrighted Material. Do not reproduce without written permission. Answer: A cost equation requires analyzing each cost for its fixed and/or variable components. The results are shown below, followed by the calculations for each item. Cost of food sold Salaries and fringe benefits Rent and depreciation Utilities and other Variable Semi-variable Fixed Semi-variable $6 per meal $11,500 + $1 per meal $4,000 per month $300 + $.60 per meal Cost of food sold. This is relatively easy. For each month, it is the total divided by the number of meals. For example, in December, it is $18,000 ÷ 3,000 = $6.00 per meal Salaries and fringe benefits. This calculation requires two equations and two unknowns: Begin with the total cost formula: TC = a + bx Apply it to December, as follows: 14,500 = a + b (3,000); a = 14,500 – 3,000b Then, apply it to January, as follows: 16,500 = a + b (5,000) Substitute from the December equation, as follows: 16,500 = (14,500 – 3,000b)...
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