Fundamentals Of Cost Accounting (6th Edition)
Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
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Chapter 13, Problem 60P

a.

To determine

Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted.

a.

Expert Solution
Check Mark

Explanation of Solution

High price strategy:

Under the high-pricestrategy, the company keeps the price of the product higher than its competitors. High-price strategy helps the company to achieve higher profit as the sales price is higher.

Prepare a budgeted income statement:

Company H

Budgeted Income Statement

For year 2

ParticularsAmountTotal amount
Sales revenue(1):  
Lodging$165,564,000 
Food & beverage$15,768,000 
Miscellaneous$7,884,000 
Total revenue $189,216,000
Operating costs:  
Labor(4)$46,620,000 
Food & beverage(1)$14,191,200 
Miscellaneous(1)$11,826,000 
Management(2)$2,700,000 
Utilities(3)$45,000,000 
Depreciation(3)$12,600,000 
Marketing(2)$27,500,000 
Other costs$8,000,000 
Total operating cost $168,437,200
Operating profit $20,778,800

Table: (1)

Thus, the operating profit is $20,778,800 for company H for year 2.

Working note 1:

Calculate the revenue and costs for year 2:

Particulars

Total nights in a year 2(8)

(a)

Cost per night(5)

(b)

% change

(c)

Total amount

d = (a×b×c)

Sales revenue:    
Lodging788,400210-$165,564,000
Food & beverage788,400$250.8$15,768,000
Miscellaneous788,400$10-$7,884,000
Costs:
food & beverage788,400$18-$14,191,200
Miscellaneous788,400$121.25$11,826,000

Table: (2)

Working note 2:

Calculate the management and marketing costs:

Particulars

Amount

(a)

% change

(b)

Total amount

    C = (a×b)

Costs:   
Management2,500,0001.082,700,000
Marketing2,500,0001.12,750,000

Table: (3)

Working note 3:

Calculate the utilities and depreciation:

Particulars

Amount

(a)

Number of property in year 1

(b)

Cost per property

    C =ab

Number of property in year 2

(d)

Total cost in year 2

E = (c×d)

Costs:     
Utilities$3,750,00015$250,00018$4,500,000
Depreciation$1,050,00015$70,00018$1,260,000

Table: (4)

Working note 4:

Calculate the labor cost:

Particulars

Cost per property

(a)

Number of property

(b)

Total nights in a year 2

    C = (a×b)

Variable labor cost per night

(d)

Total variable cost

    E = (d*50(6))

Total cost

    F = (E + C)

Labor cost$400,00018$7,200,000788,400$39,420,000$46,620,000

Table: (5)

Working note 5:

Particulars

Amount

(a)

Total nights in a year(7)

(b)

Cost per night

    C = (a×b)

Revenue:
Food & beverage$19,162,500766,500$25
Miscellaneous$7,665,000766,500$10
Costs:
Food & beverage$13,797,000766,500$18
Miscellaneous$9,198,000766,500$12

Table: (6)

Working note 6:

Calculate the average variable cost per unit:

Particulars

Total fixed labor cost

(a)

Labor cost for year 1

(b)

Net labor cost

    c = (a+b)

Total nights in a year

(d)

Cost per night

    e = de

Labor cost$6,000,000$44,325,000$38,325,000$766,500$50

Table: (7)

The fixed labor cost per property is $400,000 and there are 15 properties so the total fixed labor cost will be $6,000,000($400,000 × 15).

Working note 7:

Calculate the number of nights for year 1:

Number of properties

(a)

Number of rooms in each property

(b)

Days in a year

(c)

Occupancy rate

(d)

Total nights in a year

    e = (a×b×c×d)

1520036570%766,500

Table: (8)

Working note 8:

Calculate the number of nights for year 2:

Number of properties

(a)

Number of rooms in each property

(b)

Days in a year

(c)

Occupancy rate

(d)

Total nights in a year

    e = (a×b×c×d)

1820036560%788,400

Table: (9)

b.

To determine

Prepare a budgeted income statement for year 2 if the “High Occupancy” strategy is adopted.

b.

Expert Solution
Check Mark

Explanation of Solution

High occupancy strategy:

Under the high-occupancystrategy, the company is very optimistic about the occupancy of the room. It estimates the highest probability of occupancy rate. Higher occupancy rate helps in increasing sales because the number of units sold has increased.

Prepare a budgeted income statement:

Company H

Budgeted Income Statement

For year 2

ParticularsAmountTotal amount
Sales revenue(9):  
Lodging$178,704,000 
Food & beverage$21,024,000 
Miscellaneous$10,512,000 
Total revenue$210,240,000
Operating costs:  
Labor(10)$59,760,000 
Food & beverage(9)$18,921,600 
Miscellaneous(9)$15,768,000 
Management(2)$2,700,000 
Utilities(3)$45,000,000 
Depreciation(3)$12,600,000 
Marketing(2)$27,500,000 
Other costs$8,000,000 
Total operating cost $190,249,600
Operating profit $19,990,400

Table: (10)

Thus, the operating profit is $19,990,400 for company H for year 2.

Working note 9:

Calculate the revenue and costs for year 2:

Particulars

Total nights in a year 2(11)

(a)

Cost per night(5)

(b)

% change

(c)

Total amount

d = (a×b×c)

Sales revenue:    
Lodging1,051,200170-$178,704,000
Food & beverage1,051,200$250.8$21,024,000
Miscellaneous1,051,200$10-$10,512,000
Costs:
food & beverage1,051,200$18-$18,921,600
Miscellaneous1,051,200$121.25$15,768,000

Table: (11)

Working note 10:

Calculate the labor cost:

Particulars

Cost per property

(a)

Number of property

(b)

Total fixed cost

    C = (a×b)

Total nights in a year 2

(d)

Total variable cost

    E=(d×50(6))

Total cost

    F=(E + C)

Labor cost$400,00018$7,200,0001,051,200$52,560,000$59,760,000

Table: (12)

Working note 11:

Calculate the number of nights for year 2:

Number of properties

(a)

Number of rooms in each property

(b)

Days in a year

(c)

Occupancy rate

(d)

Total nights in a year

    e = (a×b×c×d)

1820036580%1,051,200

Table: (13)

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Chapter 13 Solutions

Fundamentals Of Cost Accounting (6th Edition)

Ch. 13 - Preparing a budget is a waste of time. The...Ch. 13 - In the Business Application feature, Using the...Ch. 13 - Prob. 13CADQCh. 13 - Would the budgeting plans for a company that uses...Ch. 13 - Government agencies are limited in spending by...Ch. 13 - What is the difference between the planning and...Ch. 13 - When might the master budget start with a forecast...Ch. 13 - In some organizations (firms, universities,...Ch. 13 - Our cash budget shows a surplus for the quarter,...Ch. 13 - Your boss asks for your estimate on the costs of a...Ch. 13 - The chapter identified four techniques used for...Ch. 13 - Role of Budgets and Plans Cosmic Corporation is a...Ch. 13 - Human Element in Budgeting Roller Partners is a...Ch. 13 - Estimate Sales Revenues Stubs-R-Us is a local...Ch. 13 - Estimate Sales Revenues Friendly Financial has 160...Ch. 13 - Estimate Sales Revenues Larson, Inc., manufactures...Ch. 13 - Estimate Production Levels Offenbach Son has just...Ch. 13 - Estimate Sales Levels Using Production Budgets...Ch. 13 - Estimate Inventory Levels Using Production Budgets...Ch. 13 - Estimate Production Levels: Capacity Constraints...Ch. 13 - Prob. 31ECh. 13 - Estimate Purchases and Cash Disbursements Midland...Ch. 13 - Estimate Purchases and Cash Disbursements Lakeside...Ch. 13 - Estimate Cash Disbursements Cascade, Ltd., a...Ch. 13 - Estimate Cash Collections Minot Corporation is...Ch. 13 - Estimate Cash Collections Ewing Company is...Ch. 13 - Estimate Cash Receipts Scare-2-B-U (S2BU)...Ch. 13 - Estimate Cash Receipts Varmit-B-Gone is a pest...Ch. 13 - Prepare Budgeted Financial Statements Refer to the...Ch. 13 - Prepare Budgeted Financial Statements Cycle-1 is a...Ch. 13 - Prepare Budgeted Financial Statements Carreras Caf...Ch. 13 - Budgeting in a Service Organization Executive...Ch. 13 - Prob. 43ECh. 13 - Prob. 44ECh. 13 - Prob. 45ECh. 13 - Prob. 46ECh. 13 - Sensitivity Analysis Sanjanas Sweet Shoppe...Ch. 13 - Sensitivity Analysis Classic Limo, Inc., provides...Ch. 13 - Prob. 49ECh. 13 - Prob. 50ECh. 13 - Prepare Budgeted Financial Statements The...Ch. 13 - Prob. 52PCh. 13 - Prepare Budgeted Financial Statements Gulf States...Ch. 13 - Prob. 54PCh. 13 - Prob. 55PCh. 13 - Prepare a Production Budget Haggstrom, Inc.,...Ch. 13 - Sales Expense Budget SPU, Ltd., has just received...Ch. 13 - Budgeted Purchases and Cash Flows Mast Corporation...Ch. 13 - Prepare Budgeted Financial Statements HomeSuites...Ch. 13 - Prob. 60PCh. 13 - Comprehensive Budget Plan Brighton, Inc.,...Ch. 13 - Comprehensive Budget Plan Panther Corporation...Ch. 13 - Budgeted Financial Statements in a Retail...Ch. 13 - Cash Budgets and Sensitivity Analysis in a Retail...Ch. 13 - Prob. 66IC
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