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Assigment 3

Here are the steps to solve this problem: 1) Calculate number of snowboards sold: Total sales revenue / Selling price per snowboard $1,600,000 / $800 = 2,000 snowboards 2) Prepare income statement: Sales revenue: 2,000 * $800 = $1,600,000 Variable selling expenses: 2,000 * $100 = $200,000 Variable administrative expenses: 2,000 * $40 = $80,000 Total variable expenses: $200,000 + $80,000 = $280,000 Contribution margin: $1,600,000 - $280,000 = $1,320,000 Fixed

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114 views7 pages

Assigment 3

Here are the steps to solve this problem: 1) Calculate number of snowboards sold: Total sales revenue / Selling price per snowboard $1,600,000 / $800 = 2,000 snowboards 2) Prepare income statement: Sales revenue: 2,000 * $800 = $1,600,000 Variable selling expenses: 2,000 * $100 = $200,000 Variable administrative expenses: 2,000 * $40 = $80,000 Total variable expenses: $200,000 + $80,000 = $280,000 Contribution margin: $1,600,000 - $280,000 = $1,320,000 Fixed

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lobo.larisse
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© © All Rights Reserved
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1.

The number of blood tests performed and the related costs over the last nine
months in Brentline Hospital are given below:

Month Blood Tests PerformedBlood Test Costs


January 3,125 $ 14,000
February 3,500 $ 14,500
March 2,500 $ 11,500
April 2,125 $ 10,000
May 2,250 $ 11,000
June 1,500 $ 8,500
July 1,550 $ 8,400
August 2,750 $ 12,000
September 2,875 $ 13,000

Required:
1. Using the high–low method, estimate the cost formula for blood tests.

The high-low method is a way to estimate the variable and fixed components of a cost.
It uses the highest and lowest activity levels (in this case, the number of blood tests
performed) and their corresponding costs to calculate the variable cost per unit and the
total fixed cost. Here's how it works:

1. Identify the highest and lowest activity levels and their corresponding costs.
2. Calculate the variable cost per unit using the formula:
Variable Cost per Unit=Cost at Highest Activity Level−Cost at Lowest A
ctivity LevelHighest Activity Level−Lowest Activity LevelVariable Cost
per Unit=Highest Activity Level−Lowest Activity LevelCost at Highest A
ctivity Level−Cost at Lowest Activity Level
3. Calculate the total fixed cost by subtracting the total variable cost at either the
high or low activity level from the total cost at that level.
4. Formulate the cost formula as:
Total Cost=(Variable Cost per Unit×Number of Units)+Fixed CostTotal
Cost=(Variable Cost per Unit×Number of Units)+Fixed Cost

Step 1: Identify High and Low Activity Levels


 Highest Activity Level: 3,500 tests in February with a cost of $14,500.
 Lowest Activity Level: 1,500 tests in June with a cost of $8,500.

Step 2: Calculate Variable Cost per Unit

Variable Cost per Unit=14,500−8,5003,500−1,500=6,0002,000=3Variable Cost


per Unit=3,500−1,50014,500−8,500=2,0006,000=3

Step 3: Calculate Total Fixed Cost

Using the high activity level to calculate the fixed cost:

Total Fixed Cost=Total Cost−(Variable Cost per Unit×Activity Level)Total Fix


ed Cost=Total Cost−(Variable Cost per Unit×Activity Level)

Total Fixed Cost=14,500−(3×3,500)=14,500−10,500=4,000Total Fixed Cost=1


4,500−(3×3,500)=14,500−10,500=4,000

Or using the low activity level:

Total Fixed Cost=8,500−(3×1,500)=8,500−4,500=4,000Total Fixed Cost=8,500


−(3×1,500)=8,500−4,500=4,000

Step 4: Formulate the Cost Formula

The cost formula for blood tests at Brentline Hospital is:

Total Cost=(3×Number of Blood Tests)+4,000Total Cost=(3×Number of Blood


Tests)+4,000

This formula estimates the total cost of blood tests based on the number of tests
performed, where $3 is the variable cost per test, and $4,000 is the total fixed cost.
2. Using the cost formula you derived above, what blood test costs would you
expect to be incurred during a month in which 2,300 blood tests are
performed?

Using the correct formula derived from the high-low method, we can calculate the
expected costs for a month in which 2,300 blood tests are performed at Brentline
Hospital.

Given Formula:

�=4,000+3�y=4,000+3x

Where:

 �y is the total cost,


 4,0004,000 is the fixed cost,
 33 is the variable cost per blood test, and
 �x is the number of blood tests performed.
Summary:

 Variable Cost: $6,900


 Fixed Cost: $4,000
 Total Cost: $10,900

Thus, for a month in which 2,300 blood tests are performed, the expected total cost
incurred would be $10,900, comprising $6,900 in variable costs and $4,000 in fixed costs.
2.

Winter Leisure is a retailer of snowboards. The information below is for the


quarter ended December 31:

Amount
Total sales revenue $1,600,000
Selling price per snowboard $ 800
Variable selling expense per snowboard $ 100
Variable administrative expense per snowboard$ 40
Total fixed selling expense $ 300,000
Total fixed administrative expense $ 240,000
Merchandise inventory, beginning balance $ 60,000
Merchandise inventory, ending balance $ 90,000
Merchandise purchases $ 640,000
Required:
1. Prepare a traditional income statement for the quarter ended December 31.

3. What was the contribution toward fixed expenses and profits for each
snowboard sold during the quarter?
4.What would operating income be if only 1,500 snowboards were sold in a
quarter? You can assume no change to fixed expenses will occur if sales
decline to 1,500 snowboards.

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