Unformatted text preview: David W. Young • Management Accounting for Managers • Chapter 2
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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 $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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- Spring '14
- ........., Boston University School of Management, Crimson Press Curriculum Center, Professor of Accounting and Control