Penny Davis runs the Shear Beauty Salon near a college campus. Several months ago, Penny used some unused space at the back of the salon and bought two used tanning beds. She hired a receptionist and kept the salon open for extended hours each week so that tanning clients would be able to use the benefits of their tanning packages. After three months, Penny wanted additional information on the costs of the tanning area. She accumulated the following data on four accounts:
Penny decided that wages and equipment
Required:
- 1. Calculate the average account balance for each account. Calculate the average monthly amount for each of the two drivers. (Round all answers to the nearest dollar or the nearest whole unit.)
- 2. Calculate fixed monthly cost and the variable rates for the account averages. (Round to the nearest cent.) Express the results in the form of an equation for total cost.
- 3. In April, Penny predicts there will be 360 visits for a total of 3,700 minutes. What is the total cost for April?
- 4. Suppose that Penny decides to buy a new tanning bed at the beginning of April for $6,960. The tanning bed is expected to last four years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in April?
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Chapter 3 Solutions
Cornerstones of Cost Management (Cornerstones Series)
- Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 308,125 720,000 40,000 Annual Driver Volume 362,500 items 30,000 orders 160 complaints $ 1,068,125 The intern selected two customers, who were frequent customers, to use as an…arrow_forwardAlter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Annual Cost $ 286,000 522,500 32,400 $ 840,900 Total order value (before delivery charge) Number of orders The intern selected two customers, who were frequent customers, to use as an illustration of…arrow_forwardAlter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Picking order Delivering order Handling complaints Total delivery cost Cost Driver Number of items Number of orders Number of complaints Total order value (before delivery charge) Number of orders Annual Cost $ 321,640 850,500 29,440 $ 1,201,580 The intern selected two customers, who were frequent customers, to use as an illustration…arrow_forward
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- Staci Valek began dabbling in pottery several years ago as a hobby. Her work is quite creative, and it hasbeen so popular with friends and others that she has decided to quit her job with an aerospace company andmanufacture pottery full time. The salary from Staci’s aerospace job is $3,800 per month.Staci will rent a small building near her home to use as a place for manufacturing the pottery. Therent will be $500 per month. She estimates that the cost of clay and glaze will be $2 for each finishedpiece of pottery. She will hire workers to produce the pottery at a labor rate of $8 per pot. To sell herpots, Staci feels that she must advertise heavily in the local area. An advertising agency states that it willhandle all advertising for a fee of $600 per month. Staci’s brother will sell the pots; he will be paid acommission of $4 for each pot sold. Equipment needed to manufacture the pots will be rented at a costof $300 per month.Staci has already paid the legal and filing fees…arrow_forwardJanice Huffman has decided to start Rundle Cleaning, a residential housecleaning service company. She is able to rent cleaning equipment at a cost of $760 per month. Labor costs are expected to be $90 per house cleaned and supplies are expected to cost $6 per house. Required a. Determine the total expected cost of equipment rental and the average expected cost of equipment rental per house cleaned, assuming that Rundle Cleaning cleans 20, 30, or 40 houses during one month. Is the cost of equipment a fixed or a variable cost? b. Determine the total expected cost of labor and the average expected cost of labor per house cleaned, assuming that Rundle Cleaning cleans 20, 30, or 40 houses during one month. Is the cost of labor a fixed or a variable cost? c. Determine the total expected cost of supplies and the average expected cost of supplies per house cleaned, assuming that Rundle Cleaning cleans 20, 30, or 40 houses during one month. Is the cost of supplies a fixed or a variable cost? d.…arrow_forwardCurley Maple has produced handcrafted tables for wholesale in his woodworking shop for the past year. He worked 6 days a week, 10 hour per day for 49 weeks of the year, leaving 3 weeks for holidays, vacation, and sick days. Curley has used up his savings over the past year, and now he needs to begin to draw an income from the business. Worried he is not pricing his tables correctly, curley decided to analyze the detailed records of his time and expenses that he has kept for the past year. Complete the chart:arrow_forward
- During their senior year at Clarkson College, two business students, Gerry Keating and Louise Lamont, began a part-time business making personal computers. They bought the various components from a local supplier and assembled the machines in the basement of a friend's house. Their only cost was $364 for parts; they sold each computer for $633. They were able to make three machines per week and to sell them to fellow students. The activity was appropriately called Keating & Lamont Computers (KLC). The product quality was good, and as graduation approached, orders were coming in much faster than KLC could fill them. A national CPA firm made Ms. Lamont an attractive offer of employment, and a large electronics company was ready to hire Mr. Keating. Students and faculty at Clarkson College, however, encouraged the two to make KLC a full-time venture. The college administration had decided to require all students in the schools of business and engineering to buy their own computers…arrow_forwardDuring their senior year at Clarkson College, two business students, Gerry Keating and Louise Lamont, began a part-time business making personal computers. They bought the various components from a local supplier and assembled the machines in the basement of a friend's house. Their only cost was $363 for parts; they sold each computer for $638. They were able to make three machines per week and to sell them to fellow students. The activity was appropriately called Keating & Lamont Computers (KLC). The product quality was good, and as graduation approached, orders were coming in much faster than KLC could fill them. A national CPA firm made Ms. Lamont an attractive offer of employment, and a large electronics company was ready to hire Mr. Keating. Students and faculty at Clarkson College, however, encouraged the two to make KLC a full-time venture. The college administration had decided to require all students in the schools of business and engineering to buy their own computers…arrow_forwardYou are the accountant for the Best Outdoor Living company which manufactures various outdoor furniture. The furniture is sold by specialty stores and through internet outlets. You are responsible for reviewing costs and creating standards costs based on the information you have reviewed. One of your former colleagues has recently started a company to collect and sell data on industry benchmarks. You are offered the chance to receive benchmarks from other outdoor furniture companies for free if you will provide the standard and actual costs for the last three years of your company. As creation of the standards is a tedious process, you feel this data would be helpful in your job. Review the IMA’s ethical guidelines, under Reading Preparation and identify the conflict with the guidelines. What are the relevant factors in this situation and how you should handle this, and what you would recommend to the Controllerarrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College