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Chapter 6 Tutorial Solution.pdf

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ACTG 2010
Rebecca Jubis

This question involves identifying cost behaviour applying the highlow method to estimate fixed and variable costs for specific cost items and forecasting total costs to use in a pricing decision for a service organization Fonseca Ruiz and Dunn is a large local accounting firm that is located in Hamilton ON Carlos Ruiz one if the firms founders appreciates the success his firm has enjoyed and wants to give something back to his communityHe believes that an inexpensive accountingservices clinic could provide basic accounting services for small unincorporated businessesHe wants to price the services at cost Since the clinic is brand new it has no experience to go onCarlos decides to operate the clinic for two months before determining how much to charge per hour on an ongoing basisAs a temporary measure the clinic adopted an hourly charge of 25 half the amount charged by the firm for professional services The accounting services clinic opened on January 1During January the clinic had 120 hours of professional serviceDuring February the activity was 150 hoursCosts for these two levels of activity usage are as followsRequired 1Classify each cost as fixed variable or mixed using hours of professional service as the activity cost driverRequired 1 Required 3 Cost Variable Cost Item Behaviour Why Fixed Cost Cost per Classification Hour Sr accountants salary Fixed Constant Office assistants salary Fixed Constant Internetsoftware Mixed Nonproportional subscriptions change Consulting by sr partner Variable Proportional change Amortization equipment FixedConstant SuppliesMixedNonproportional change Administration FixedConstant Rent offices FixedConstant Nonproportional UtilitiesMixedchange Nonproportional TOTAL Mixedchange 1
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