Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 11, Problem 11.38P

Opportunity costs and relevant costs. Jason Wu operates Exclusive Limousines, a fleet of 10 limousines used for weddings, proms, and business events in Washington, D.C. Wu charges customers a flat fee of $250 per car taken on contract plus an hourly fee of $80. His income statement for May follows:

Revenue (200 contracts × $250) + (1,250 hours × $80) $150,000
Operating expenses:  
Driver wages and benefits ($35 per hour × 1,250 hours) 43,750
Depreciation on limousines 19,000
Fuel costs ($12.80 per hour × 1,250 hours) 16,000
Maintenance 18,400
Liability and casualty insurance 2,500
Advertising 10,500
Administrative expenses 24,200
Total expenses 134,350
Operating income $ 15,650

All expenses are fixed, with the exception of driver wages and benefits and fuel costs, which are both variable per hour. During May, the company’s limousines were fully booked. In June, Wu expects that Exclusive Limousines will be operating near capacity. Shelly Worthington, a prominent Washington socialite, has asked Wu to bid on a large charity event she is hosting in late June. The limousine company she had hired has canceled at the last minute, and she needs the service of five limousines for four hours each. She will only hire Exclusive Limousines if they take the entire job. Wu checks his schedule and finds that he only has three limousines available that day.

  1. 1. If Wu accepts the contract with Worthington, he would either have to (a) cancel two prom contracts each for one car for six hours or (b) cancel one business event for three cars contracted for two hours each. What are the relevant opportunity costs of accepting the Worthington contract in each case? Which contract should he cancel?

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  1. 2. Wu would like to win the bid on the Worthington job because of the potential for lucrative future business. Assume that Wu cancels the contract in requirement 1 with the lowest opportunity cost, and assume that the three currently available cars would go unrented if the company does not win the bid. What is the lowest amount he should bid on the Worthington job?
  2. 3. Another limousine company has offered to rent Exclusive Limousines two additional cars for $300 each per day. Wu would still need to pay for fuel and driver wages on these cars for the Worthington job. Should Wu rent the two cars to avoid canceling either of the other two contracts?
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Opportunity costs and relevant costs. Jason Wu operates Exclusive Limousines, a eet of 10 limousines used for weddings, proms, and business events in Washington, D.C. Wu charges customers a at fee of $250 per car taken on contract plus an hourly fee of $80. His income statement for May follows:
William Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base salary of $1,510 per month. One of the barbers serves as the manager and receives an extra $580 per month. In addition to the base salary, each barber also receives a commission of $8.40 per haircut. Other costs are as follows. Advertising Rent Barber supplies Utilities Magazines William currently charges $18.00 per haircut. (a) Determine the unit variable costs per haircut and the total monthly fixed costs. (Round variable costs to 2 decimal places, e.g. 2.25.) Your answer is correct.. Total unit variable cost per haircut Total fixed costs (b) $300 per month $1,020 per month $0.45 per haircut $150 per month plus $0.15 per haircut $30 per month eTextbook and Media (d) V Your answer is correct. Break-even point Break-even point sales $ Compute the break-even point in sales units and in sales dollars. eTextbook and Media Your answer is incorrect. $ Net income $ $ 1070 19260 9 9630 haircuts Determine…
Vin Diesel owns the Fredonia Barber Shop. He employs four barbers and pays each a base rate of $1,250 per month. One of the barbers serves as the manager and receives an extra $500 per month. In addition to the base rate, each barber also receives a commission of $4.50 per haircut.Other costs are as follows.Advertising $200permonth Rent $1,100permonth Barber supplies $0.30 per haircut Utilities $175 per month plus $0.20 per haircut Magazines $25 per monthVin currently charges $10 per haircut.Instructions(a) Determine the variable costs per haircut and the total monthly fixed costs. (b) Compute the break-even point in units and dollars. (c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use incre-ments of 300 haircuts on the horizontal axis and $3,000 on the vertical axis. (d) Determine net income, assuming 1,600 haircuts are given in a month.

Chapter 11 Solutions

Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)

Ch. 11 - Prob. 11.11QCh. 11 - Cost written off as depreciation on equipment...Ch. 11 - Managers will always choose the alternative that...Ch. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Qualitative and quantitative factors. Which of the...Ch. 11 - Special order, opportunity cost. Chade Corp. is...Ch. 11 - Prob. 11.18MCQCh. 11 - Keep or drop a business segment. Lees Corp. is...Ch. 11 - Relevant costs. Ace Cleaning Service is...Ch. 11 - Disposal of assets. Answer the following...Ch. 11 - Relevant and irrelevant costs. Answer the...Ch. 11 - Multiple choice. (CPA) Choose the best answer. 1....Ch. 11 - Special order, activity-based costing. (CMA,...Ch. 11 - Make versus buy, activity-based costing. The...Ch. 11 - Inventory decision, opportunity costs. Best Trim,...Ch. 11 - Relevant costs, contribution margin, product...Ch. 11 - Selection of most profitable product. Body Image,...Ch. 11 - Theory of constraints, throughput margin, relevant...Ch. 11 - Closing and opening stores. Sanchez Corporation...Ch. 11 - Prob. 11.31ECh. 11 - Relevance of equipment costs. Janets Bakery is...Ch. 11 - Equipment upgrade versus replacement. (A. Spero,...Ch. 11 - Special order, short-run pricing. Diamond...Ch. 11 - Short-run pricing, capacity constraints. Fashion...Ch. 11 - International outsourcing. Riverside Clippers Corp...Ch. 11 - Relevant costs, opportunity costs. Gavin Martin,...Ch. 11 - Opportunity costs and relevant costs. Jason Wu...Ch. 11 - Opportunity costs. (H. Schaefer, adapted) The Wild...Ch. 11 - Make or buy, unknown level of volume. (A....Ch. 11 - Make versus buy, activity-based costing,...Ch. 11 - Prob. 11.42PCh. 11 - Product mix, special order. (N. Melumad, adapted)...Ch. 11 - Theory of constraints, throughput margin, and...Ch. 11 - Theory of constraints, contribution margin,...Ch. 11 - Closing down divisions. Ainsley Corporation has...Ch. 11 - Dropping a product line, selling more tours....Ch. 11 - Prob. 11.48PCh. 11 - Dropping a customer, activity-based costing,...Ch. 11 - Equipment replacement decisions and performance...
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