# Variable Cost and Net Operating Income

Topics: Variable cost, Costs, Fixed cost Pages: 65 (14633 words) Published: January 30, 2012
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Question 1: Score 0/4

Your response Exercise 5-1 Fixed and Variable Cost Behavior [LO1] Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is \$1,200 and the variable cost per cup of coffee served is \$0.22. Requirement 1: Fill in the following table with your estimates of total costs and cost per cup of coffee at the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee to 3 decimal places. Omit the "\$" sign in your response.) 2,000 Fixed cost Variable cost Total cost Average cost per cup of coffee served \$ \$ \$ 0.60 0.22 0.82 0.792

Correct response Exercise 5-1 Fixed and Variable Cost Behavior [LO1] Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is \$1,200 and the variable cost per cup of coffee served is \$0.22. Requirement 1: Fill in the following table with your estimates of total costs and cost per cup of coffee at the indicated levels of activity for a coffee stand. (Round average cost per cup of coffee to 3 decimal places. Omit the "\$" sign in your response.) Cups of Coffee Served in a Week 2,000 2,100 2,200 1,200 1,200 \$ \$ \$ 1,200 440 1,640 \$ 462 1,662 \$ 484 1,684 \$

Cups of Coffee Served in a Week 2,100 2,200 (0%) \$ 0.571 (0%) \$ 0.545 (0%) (0%) 0.22 (0%) 0.22 (0%) (0%) \$ 0.791 (0%) \$ 0.765 (0%) (0%) \$ 0.792

(0%)

\$

0.792

(0%)

Fixed cost Variable cost Total cost Average cost per cup of coffee served

\$ 0.82

\$ 0.791

\$ 0.765

Total grade: 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% Feedback: Average cost per cup of coffee served = Total cost ÷ cups of coffee served in a week Requirement 2: Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases? Your Answer: Choice Increases Decreases Remains the same Feedback: The average cost of a cup of coffee declines as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee. Selected Correct

Question 2: Score 0/4

Exercise 6-2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2] Karlik Enterprises distributes a single product whose selling price is \$24 and whose variable expense is \$18 per unit. The company's monthly fixed expense is \$24,000. Requirement 1: Offline: Prepare a cost-volume-profit graph for the company up to a sales level of 8,000 units. Requirement 2: Estimate the company's break-even point in unit sales using your cost-volume-profit graph analysis. Break-even point in sales Total grade: 0.0×1/1 = 0% Feedback: The break-even point is the point where the total sales revenue and the total expense lines intersect. This occurs at sales of 4,000 units. This can be verified as follows: 16.67

Exercise 6-2 Prepare a Cost-Volume-Profit (CVP) Graph [LO2] Karlik Enterprises distributes a single product whose selling price is \$24 and whose variable expense is \$18 per unit. The company's monthly fixed expense is \$24,000. Requirement 1: Offline: Prepare a cost-volume-profit graph for the company up to a sales level of 8,000 units. Requirement 2: Estimate the company's break-even point in unit sales using your cost-volume-profit graph analysis. Break-even point in sales 4,000

(0%) units

units

Question 3: Score 2.6/4

Your response Exercise 5-3 High-Low Method [LO3] The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented out for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and...