Chapter2 Solution

2-18

CHAPTER 2 (15–20 min.) Classification of costs, service sector.

Cost object: Each individual focus group Cost variability: With respect to the number of focus groups There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item A B C D E F G H

a

D or I D I I I D I D I

V or F V F Va F V F V Vb

Some students will note that phone call costs are variable when each call has a separate charge. It may be a fixed cost if Consumer Focus has a flat monthly charge for a line, irrespective of the amount of usage. b Gasoline costs are likely to vary with the number of focus groups. However, vehicles likely serve multiple purposes, and detailed records may be required to examine how costs vary with changes in one of the many purposes served.

2-1

2-25 1.

(20 min.) Total costs and unit costs

umber of attendees 0 Variable cost per person ($10 caterer charge – $5 student door fee) $5 Fixed Costs $1,500 Variable costs (number of attendees x variable cost per person) 0 Total costs (fixed + variable) $1,500

100

200

300

400

500

600

$5 $1,500

$5 $1,500

$5 $1,500

$5 $1,500

$5 $1,500

$5 $1,500

500 $2,000

1,000 $2,500

1,500 $3,000

2,000 $3,500

2,500 $4,000

3,000 $4,500

Fixed, Variable and Total Cost of Graduation Party

5000 4000 Costs ($) 3000 2000 1000 0 0 100 200 300 400 500 600 Number of attendees Fixed Costs Variable Cost Total Cost

2.

Number of attendees Total costs (fixed + variable) Costs per attendee (total costs ÷ number of attendees) 0 $1,500 100 $2,000 $20.00 200 $2,500 $12.50 300 $3,000 $10.00 400 $3,500 $ 8.75 500 $4,000 $ 8.00 600 $4,500 $ 7.50

As shown in the table above, for 100 attendees the total cost will be $2,000 and the cost per attendee will be $20. 3. As shown in the table in requirement 2, for 500 attendees the total cost will be $4,000 and the cost per attendee will be $8.

2-2

4. Using the calculations...