HTF 100 Study Guide - Midterm Guide: Fixed Cost

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purpleferret646

20 Apr 2015

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Variation of cvp analysis: number of guests served at breakeven point. Total fixed costs/guest check average-variable cost per guest: number of guests served at desired net income level. Total fixed costs+desired net income/guest check average-variable cost per guest: number of additional guests needed because of new fixed costs. New fixed costs/guest check average-variable cost per guest: total number of guests needed due to additional variable costs. Total fixed cost+desired net income/guest check average (old variable costs per guest + additional variable costs per guest: number of guests needed if operating time is extended to yield a desired increase in net income. Total additional fixed costs+desired increase in net income/guest check average-

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EXERCISE 2-14 High-Low Method; Predicting Cost [L02-4, LO2-5] The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were: Guest-Days of Occupancy Custodial Supplies Expense Month March ....... April May June ...... July ........ August September ...... 4,000 6,500 8,000 10,500 12,000 9,000 7,500 $7,500 $8,250 $10,500 $12,000 $13,500 $10,750 $9,750 . . . . . . Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days. Required: 1. Using the high-low method, estimate a cost formula for custodial supplies expense. 2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 3. Prepare a scattergraph using the data given above. Plot custodial supplies expense on the ver- tical axis and the number of guest-days occupied on the horizontal axis. Draw a straight line 4. through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $3,973.10 per month and the variable cost to be $0.77 per guest-day. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors? Using the least-squares regression estimates given in requirement 4, what custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 5. Net operating income. $ 6,000 $ 18,000 $ 30,000 Required: 1. Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. 3. Redo the company's income statement at the 5,000-unit level of activity using the contribution format.

Horngrens accounting 11th edition chapter 21 question 57B City Productions perform london shows. The avg show sells 900 tickets at 65 per ticket, 140 shows per yr. Avg show has cast of 55 each earning avg of 330 per show, the cast is pd after each show. The other variable cost is a cost of $9 per guest. Annual fixed cost total 580500. !)use equation approach to compute # of shows city prod must perform to break even. 2)use Contribution margain ratio approach to compute the # of shows needed each yr to earn profir of 4,128,000, Is this profit goal realistic? give reasoning. 3) prepare City Productions contribution margain income statement for 140 shows performed in 2016. report only 2 categories of costs: variable and fixed.

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Select the assumptions underlying CVP analysis. Choose the four assumptions underlying CVP analysis

1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units sold.

2. Total costs can be separated into a fixed component that does not vary with the units sold and a component that is variable with respect to the units sold.

3. Fixed costs only include the direct fixed costs and do not include indirect fixed costs of a product (or service).

4. When represented graphically, the behavior of total revenues and total costs are linear (represented as a straight line) in relation to units sold within a relevant range and time period.

5. The number of units sold is one of many cost drivers.

6. The selling price, variable cost per unit, and fixed costs are known and constant.

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HTF 100 Study Guide - Midterm Guide: Fixed Cost

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