Financial Accounting > SOLUTIONS MANUAL > Sacred Heart University - ACCT 101AC222_worksheet_Feb14_Ch6 (All)

Sacred Heart University - ACCT 101AC222_worksheet_Feb14_Ch6

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AC 222 – Worksheet for class Tuesday, February 14 Topic: Cost Behavior - How do costs change in response to a change in activity level? By the end of today’s class you should be able to: 1. Und... erstand the meanings of the terms variable costs, fixed costs and mixed costs 2. Be able to identify costs as either variable or fixed 3. Be able to calculate total variable costs, total fixed costs, variable cost per unit and fixed cost per unit when given the appropriate information 4. Understand the meanings of the terms unit contribution margin and contribution margin ratio and be able to calculate each when given the appropriate information 5. Be able to prepare a contribution margin income statement Part 1 – Fixed and variable costs Example 1: After graduation, you open up a fitness center in Fairfield that can accommodate up to 750 members per month. In order to operate profitably, you need to understand the behavior of the center’s costs. 1. Classify each of the following costs expected to be incurred as either variable or fixed: Advertising fixed Depreciation on fitness equipment fixed Disposable (one-time-use) cleaning cloths for machines variable Rent on the facility fixed Salaries of employees fixed Sales commissions of $10 per hour for each employee providing personal training to members variable Toiletries in bathrooms variable Water and paper cups available to members near the front desk variable 2. Assume you expect to incur the following costs for the first month of operations at the fitness center:  Fixed costs of $10,000  Variable costs of $1 per member Complete the following schedule for different levels of monthly membership based on this information: Monthly operating costs 100 members 500 members 750 members Total variable costs $100 $500 $750 Total fixed costs $10,000 $10,000 $10,000 Total operating costs $10,100 $10,500 $10,750 Example 2: After graduation your roommate decides to open up a dry cleaning business in Westport. The business has enough capacity to clean up to 5,000 garments per month. Calculate the missing values of variable and fixed costs based on the activity levels shown below. 2,000 garments 3,500 garments 5,000 garments Total variable costs $1,200 $2,100 [Show More]

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