Costs Incurred Production in Units 5,000 10,000 Determine the inn\'s break-even
ID: 2379485 • Letter: C
Question
Costs Incurred
Production in Units
5,000
10,000
Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars.
Question 1 Hall Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production.Costs Incurred
Production in Units
5,000
10,000
Production Costs Total Cost Cost/Unit Total Cost Cost per Unit Direct Materials $8,250 $1.65 $16,500 $1.65 Direct Labor 9,500 1.90 19,000 1.90 Utilities 1,500 0.30 2,500 0.25 Rent 4,000 0.80 4,000 0.40 Maintenance 800 0.16 1,100 0.11 Supervisory salaries 1,000 0.20 1,000 0.10 Hall Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production. Match the definitions to the terms. Remain constant in total, but vary on a per-unit basis. Contain both a fixed element and a variable element. Vary both in total and on a per unit basis. Vary in total but remain constant on a per-unit basis. Classify each cost above as either variable, fixed, or mixed. The Lake Shore Inn is trying to determine its break-even point. The inn has 50 rooms that are rented at $62 per night. Operating costs are as follows: Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars.Explanation / Answer
Answers
---Part 1
Variable costs
Vary in total but remain constant on a per-unit basis
Fixed costs
Remain constant in total, but vary on a per-unit basis
Mixed costs
Contain both a fixed element and a variable element. Vary both in total and on a per unit basis
---Part 2
Direct Materials
Variable cost, because cost per unit stayed at $1.65 even when production increased to 10,000 units from 5,000 units.
Direct Labor
Variable cost, because cost per unit stayed at $1.90 even when production increased to 10,000 units from 5,000 units.
Utilities
Mixed Cost, because cost per unit changed as well as total cost also changed when production increased.
Rent
Fixed, because total cost stayed the same, while per unit cost decreased as the production increased.
Maintenance
Mixed Cost, because cost per unit changed as well as total cost also changed when production increased.
Supervisory salaries
Fixed, because total cost stayed the same, while per unit cost decreased as the production increased.
---Working
A
Salaries
$ 8,875.00
B
Utilities
$ 1,482.00
C
Depreciation
$ 1,198.00
D
Maintenance
$ 233.00
E= A+B+C+D
Total Fixed Cost
$ 11,788.00
A
Maid Service
$ 6.00
B
Other costs
$ 28.00
C=A+B
Total variable cost per room
$ 34.00
---Answer: Break Even
A
Rent per night per room
$ 62.00
B
Total variable cost per room
$ 34.00
C=A-B
Contribution margin per room
$ 28.00
D
Total Fixed Cost
$ 11,788.00
E = D/C
Break Even number of rooms rented per month
421
F = E x A
Break Even Sales Dollars
$ 26,102.00
Variable costs
Vary in total but remain constant on a per-unit basis
Fixed costs
Remain constant in total, but vary on a per-unit basis
Mixed costs
Contain both a fixed element and a variable element. Vary both in total and on a per unit basis