Exercise 1:
Identify cost behavior (LO 1) Identify each of the following costs in terms of its cost behavior-variable, fixed, mixed, or step.
•The cost of coffee beans at a Starbucks shop.
•Depreciation of airplanes at Southwest Airlines
•NursesA wage at M.D. Anderson Cancer Center, assuming a ration of one nurse to every five patients.
•Electricity cost at a Krispy Kreme Doughnuts store.
•The of hard drives installed in computers built by Dell.
•Store managers salaries at Barnes and Noble bookstores.
•Actors A wages and salaries at Paramount Studios, when the star is paid a base amount plus a percentage of box office receipts.
•The cost of fabric used in making shirts at LandsA????1 End.
•The cost of cookies provided to guests at check-in at Doubletree Hotels.
•The cost of a national advertising campaign for Burger King.
Exercise 2:
Estimate unit and total costs (Lo 1) Will Jones, LLP is a small CPA firm that focuses primarily on preparing tax returns for small businesses. The company pays a $500 annual fee plus $10 per tax return for a license to use Mega Tax software.
Required.
•What is the company A's total annual cost for the Mega Tax software if 300 returns are filed? If 400 returns are filed? 500 return are filed?
•What is the company A's cost per return for the Mega Tax software if 300 returns are filed? If 400 returns are filed? If 500 returns are filed?
•Why does the cost per return differ at each of the three volume levels?
Exercise 3:
Cost behavior (LO 1) Identify each of the following costs, incurred monthly by Baylor Ballon Bouquests, as fixed, variable, or mixed. Explain you reasoning.
Bouquests Sold
___________________________________________________
5,000 7,500 10,000
Ballons (10 per bouquet) $10,000 $15,000 $20,000
Insurance $5,000 $5,000 $5,000
Delivery $5,000 $5,000 $5,000
Employee compensation $10,000 $13,000 $16,000
Advertising $1,500 $1,500 $1,500
Exercise 4:
Cost behavior : The Boeing Company produces commercial aircraft. The following passage is taken from Management A's Discussion and Analysis, included in Boeing A's 2005 Annual Report.
A's Commercial aircraft production costs include a significant amount of infrastructure costs, a portion of which do not vary with production rates.
As part of its accounting practices, Boeing spreads the fixed infrastructure costs over the A's accounting quantity A's for each type of airplane. The accounting quantity is the estimated number of planes that will eventually be produced. At the end of 2005, Boeing A's accounting quantity for the 737 Next-Generation plane was 2,800. At the end of 2011, the accounting quantity for this plane had risen to 6,200.
Required.
•What effect would this change in accounting quantity have on the total fixed infrastructure cost of the 737 Next-Generation plane?
•What effect would this change in accounting quantity have on the unit cost of the 737 Next-Generation plane?