# Equipment resource 45000 fuel resource 24000 6000 gal

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EQUIPMENT RESOURCE \$45,000 FUEL RESOURCE \$24,000 + 6,000 Gal. = \$4 Per Gallon Used RECEIVING ACTIVITY: - Cost Driver Number of Parts Received, 30,000 6 | P a g e 5. One refinement is to note that total fuel usage is a function of both the efficiency in machine use as well as efficiency in fuel consumption. In terms of productivity metrics this can be expressed as follows: Current model: Total Fuel Cost = S/Gallon x Gallons/Part Received * Total Number of Parts Received. Refined model: Total Fuel Cost = S/Gallon * Gallons Used/Operating Hour x Operating Hours/Part Received x Total Number of Parts Received. The refined model has two productivity measures instead of only one. Both these measures are controllable by operating managers in the receiving department. As a result, management can focus effort in two areas of potential improvement. For example, if there was a 20% improvement in both these productivity measures, the total fuel cost would be Total fuel cost = \$4/Gal. x .8 * 4 Gal./Hour Operated * .8 * .05 Hours Operated/Part Received * 30,000 Parts Received = \$15,360. The predicted total cost of receiving would then be \$15.360 + \$45,000 = \$60,360 and the target goal would be achieved. 54. 1. Let N = meals sold Sales - Variable expenses - Fixed expenses = Profit before taxes \$18X - \$9.50X - \$17,000 = \$8,500 X= \$25,500 / \$8.50 X = 3,000 meals 2. \$18X - \$9.50X - \$17,000 = O X= \$17,000 / \$8.50 X = 2,000 meals 3. \$22X - \$11.40X - \$25,420 = \$8,500 X = \$33,920 / \$10.60 X = 3,200 meals 4. Profit = (\$22 x 2,550) - (\$11.40 x 2,550) - \$25,420 Profit = \$1,610 5. Profit = (\$22 x 2,800) - (\$11.40 x 2,800) - (\$25,420 + \$2,300) Profit = \$29,680 - \$27,720 Profit = \$1,960, an increase of \$350. 7 | P a g e 56. Net sales (.9 x \$82,559) = \$74,303 Variable costs: Cost of goods sold (.9 x \$40,768) = \$36,691 Contribution margin = \$37,612 Fixed costs: Selling, administrative, and general expenses = \$25,973 Operating income = \$11,639 The percentage decrease in operating income would be 1 - (\$11,639 / \$15,818) = 1 - .736 or 26.4%, compared with a 10% decrease in sales. The contribution margin would decrease by 10% or .10 x (\$82,559 - \$40,768) = \$4,179 million. Because fixed costs would not change (assuming the new volume is within the relevant range), operating income would also decrease by \$4,179 million, from \$15,818 million to \$11,639 million. Because of the existence of fixed costs, the percentage decrease in operating income will exceed the percentage decrease in sales. If all costs had been variable, fixed costs would have decreased by an additional .10 x \$25,973 = \$2,597 million, making operating income \$11,639 + \$2,597 = \$14,236 million, a 10% decrease from the 2011 operating income of \$15,818 million. 58. 1. Fixed costs are \$37 million. Variable costs in the first quarter of 2001 were: Operating expenses - Fixed costs = Variable costs \$123 million - \$37 million = \$86 million Variable costs were \$86 million / \$154 million = 55.84% of sales. If this percentage also applied to 2002, variable costs in 2002 should have been 55.84% x \$245 million = \$136.8 million. Since sales increased by 1- (\$245 million / \$154 million) = 59.09% in 2002, variable costs should also have increased by 59.09%: 2002 variable costs = 1.5909 x \$86 million = \$136.8 million Therefore, operating income of 2002: Operating income = revenues - variable cost - fixed cost = \$245 million - \$136.8 million - \$37 million = \$71.2 million. This is a 130% increase in operating income: (\$71.2 million / \$31 million) - 1 = 130% 2. When sales increased 59%, operating income increased by 130%. This is an example of the effect of operating leverage. The variable cost percentage is approximately \$86 / \$154 = 56%. Thus, the contribution margin percentage is 100% - 56% = 44%.  #### You've reached the end of your free preview.

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