Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
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Chapter 3, Problem 36E
To determine
Place an X in the appropriate box for variable cost, discretionary fixed cost or committed fixed cost.
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Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the tests that they perform require the use of a specialized machine that can supply 14,000 hours per year. Information on the four lab tests follows:
Â
Test A
Test B
Test C
Test D
Charging rate
$65
$51
$48
$32
Variable cost
$25
$18
$13
$8
Machine hours
3
2
1
0.5
What is the contribution margin per hour of machine time for Test B?
a.$33
b.$16.25
c.$18
d.$20.50
e.$16.50
Alva Community Hospital has five laboratory technicians who are responsible for doing a seriesof standard blood tests. Each technician is paid a salary of $30,000. The lab facility representsa recent addition to the hospital and cost $300,000. It is expected to last 20 years. Equipmentused for the testing cost $10,000 and has a life expectancy of 5 years. In addition to the salaries,facility, and equipment, Alva expects to spend $200,000 for chemicals, forms, power, and othersupplies. This $200,000 is enough for 200,000 blood tests.Required:Assuming that the driver (measure of output) for each type of cost is the number of blood testsrun, classify the costs by completing the following table. Put an X in the appropriate box forvariable cost, discretionary fixed cost, or committed fixed cost.
t. John's Medical Testing Center (SJMC), which provides services such as x-rays, CAT scans, MRIs, etc., has five medical technicians who are responsible for conducting cardiac catheterization testing in SJMC's Cath Lab. Each technician is paid a salary of $36,000 and is capable of conducting 1,000 procedures per year. The cardiac catheterization equipment is one year old and was purchased for $250,000. It is expected to last five years. The equipment's capacity is 25,000 procedures over its life. Depreciation is computed on a straight-line basis, with no salvage value expected. The reading of the catheterization results is conducted by an outside physician whose fee is $120 per test. The technician's report with the outside physician's note of results is sent to the referring physician. In addition to the salaries and equipment, SJMC spends $50,000 for supplies and other costs needed to operate the equipment (assuming 5,000
procedures are conducted). When SJMC purchased the…
Chapter 3 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
Ch. 3 - Prob. 1DQCh. 3 - What is a driver? Give an example of a cost and...Ch. 3 - Suppose a company finds that shipping cost is...Ch. 3 - Some firms assign mixed costs to either the fixed...Ch. 3 - Explain the difference between committed and...Ch. 3 - Explain why the concept of relevant range is...Ch. 3 - Why do mixed costs pose a problem when it comes to...Ch. 3 - Describe the cost formula for a strictly fixed...Ch. 3 - Describe the cost formula for a strictly variable...Ch. 3 - What is the scattergraph method, and why is it...
Ch. 3 - Describe how the scattergraph method breaks out...Ch. 3 - What are the advantages of the scattergraph method...Ch. 3 - Prob. 13DQCh. 3 - What is meant by the best-fitting line?Ch. 3 - What is the difference between the unit cost of a...Ch. 3 - Prob. 16DQCh. 3 - (Appendix 3A) Explain the meaning of the...Ch. 3 - A factor that causes or leads to a change in a...Ch. 3 - Which of the following would probably be a...Ch. 3 - Prob. 3MCQCh. 3 - In the cost formula, the term 128,000,000 a. is...Ch. 3 - In the cost formula, the term 12,000 a. is the...Ch. 3 - Prob. 6MCQCh. 3 - Prob. 7MCQCh. 3 - The following cost formula for total purchasing...Ch. 3 - An advantage of the high-low method is that it a....Ch. 3 - Prob. 10MCQCh. 3 - Prob. 11MCQCh. 3 - Prob. 12MCQCh. 3 - The total cost for monthly supervisory cost in a...Ch. 3 - Yates Company shows the following unit costs for...Ch. 3 - (Appendix 3A) In the method of least squares, the...Ch. 3 - Creating and Using a Cost Formula Big Thumbs...Ch. 3 - Using High-Low to Calculate Fixed Cost, Calculate...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Using Regression to Calculate Fixed Cost,...Ch. 3 - Inventory Valuation under Absorption Costing Refer...Ch. 3 - Inventory Valuation under Variable Costing Refer...Ch. 3 - Absorption-Costing Income Statement Refer to the...Ch. 3 - Variable-Costing Income Statement Refer to the...Ch. 3 - Creating and Using a Cost Formula Kleenaire Motors...Ch. 3 - Using High-Low to Calculate Fixed Cost, Calculate...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Brief Exercise 3-28 Using High-Low to Calculate...Ch. 3 - Using Regression to Calculate Fixed Cost,...Ch. 3 - Inventory Valuation under Absorption Costing Refer...Ch. 3 - Inventory Valuation under Variable Costing Refer...Ch. 3 - Brief Exercise 3-32 Absorption-Costing Income...Ch. 3 - Brief Exercise 3-33 Variable-Costing Income...Ch. 3 - Variable and Fixed Costs What follows are a number...Ch. 3 - Cost Behavior, Classification Smith Concrete...Ch. 3 - Prob. 36ECh. 3 - Prob. 37ECh. 3 - Prob. 38ECh. 3 - Step Costs, Relevant Range Bellati Inc. produces...Ch. 3 - Matching Cost Behavior Descriptions to Cost...Ch. 3 - Examine the graphs in Exercise 3-40. Required: As...Ch. 3 - Prob. 42ECh. 3 - Prob. 43ECh. 3 - High-Low Method Refer to the information for Luisa...Ch. 3 - Scattergraph Method Refer to the information for...Ch. 3 - Method of Least Squares Refer to the information...Ch. 3 - Use the following information for Exercises 3-47...Ch. 3 - Use the following information for Exercises 3-47...Ch. 3 - Method of Least Squares, Developing and Using the...Ch. 3 - The method of least squares was used to develop a...Ch. 3 - Identifying the Parts of the Cost Formula;...Ch. 3 - Inventory Valuation under Absorption Costing...Ch. 3 - Inventory Valuation under Variable Costing Lane...Ch. 3 - Income Statements under Absorption and Variable...Ch. 3 - (Appendix 3A) Method of Least Squares Using...Ch. 3 - (Appendix 3A) Method of Least Squares Using...Ch. 3 - Identifying Fixed, Variable, Mixed, and Step Costs...Ch. 3 - Identifying Use of the High-Low, Scattergraph, and...Ch. 3 - Identifying Variable Costs, Committed Fixed Costs,...Ch. 3 - Scattergraph, High-Low Method, and Predicting Cost...Ch. 3 - Method of Least Squares, Predicting Cost for...Ch. 3 - Cost Behavior, High-Low Method, Pricing Decision...Ch. 3 - Prob. 63PCh. 3 - Variable and Fixed Costs, Cost Formula, High-Low...Ch. 3 - Cost Separation About 8 years ago, Kicker faced...Ch. 3 - Variable-Costing and Absorption-Costing Income...Ch. 3 - Refer to the information for Farnsworth Company...Ch. 3 - (Appendix 3A) Scattergraph, High-Low Method,...Ch. 3 - (Appendix 3A) Separating Fixed and Variable Costs,...Ch. 3 - (Appendix 3A) Cost Formulas, Single and Multiple...Ch. 3 - Suspicious Acquisition of Data, Ethical Issues...
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- St. Johns Medical Center (SJMC) has five medical technicians who are responsible for conducting cardiac catheterization testing in SJMCs Cath Lab. Each technician is paid a salary of 36,000 and is capable of conducting 1,000 procedures per year. The cardiac catheterization equipment is one year old and was purchased for 250,000. It is expected to last five years. The equipments capacity is 25,000 procedures over its life. Depreciation is computed on a straight-line basis, with no salvage value expected. The reading of the catheterization results is conducted by an outside physician whose fee is 120 per test. The technicians report with the outside physicians note of results is sent to the referring physician. In addition to the salaries and equipment, SJMC spends 50,000 for supplies and other costs needed to operate the equipment (assuming 5,000 procedures are conducted). When SJMC purchased the equipment, it fully expected to perform 5,000 procedures per year. In fact, during its first year of operation, 5,000 procedures were run. However, a larger hospital has established a clinic in the city and will siphon off some of SJMCs business. During the coming years, SJMC expects to run only 4,200 cath procedures yearly. SJMC has been charging 850 for the procedureenough to cover the direct costs of the procedure plus an assignment of general overhead (e.g., depreciation on the hospital building, lighting and heating, and janitorial services). At the beginning of the second year, an HMO from a neighboring community approached SJMC and offered to send its clients to SJMC for cardiac catheterization provided that the charge per procedure would be 550. The HMO estimates that it can provide about 500 patients per year. The HMO has indicated that the arrangement is temporaryfor one year only. The HMO expects to have its own testing capabilities within one year. Required: 1. Classify the resources associated with the cardiac catheterization activity into one of the following: (1) committed resources, or (2) flexible resources. 2. Calculate the activity rate for the cardiac catheterization activity. Break the activity rate into fixed and variable components. Now, classify each activity resource as relevant or irrelevant with respect to the following alternatives: (1) accept the HMO offer, or (2) reject the HMO offer. Explain your reasoning. 3. Assume that SJMC will accept the HMO offer if it reduces the hospitals operating costs. Should the HMO offer be accepted? 4. Jerold Bosserman, SJMCs hospital controller, argued against accepting the HMOs offer. Instead, he argued that the hospital should be increasing the charge per procedure rather than accepting business that doesnt even cover full costs. He also was concerned about local physician reaction if word got out that the HMO was receiving procedures for 550. Discuss the merits of Jerolds position. Include in your discussion an assessment of the price increase that would be needed if the objective is to maintain total revenues from cardiac catheterizations experienced in the first year of operation. 5. Chandra Denton, SJMCs administrator, has been informed that one of the Cath Lab technicians is leaving for an opportunity at a larger hospital. She met with the other technicians, and they agreed to increase their hours to pick up the slack so that SJMC wont need to hire another technician. By working a couple hours extra every week, each remaining technician can perform 1,050 procedures per year. They agreed to do this for an increase in salary of 2,000 per year. How does this outcome affect the analysis of the HMO offer? 6. Assuming that SJMC wants to bring in the same revenues earned in the cardiac catheterization activitys first year less the reduction in resource spending attributable to using only four technicians, how much must SJMC charge for a procedure?arrow_forwardSt. John's Medical Center (SJMC) has five medical technicians who are responsible for conducting cardiac catheterization testing in SJMC's Cath Lab. Each technician is paid a salary of $36,000 and is capable of conducting 1,000 procedures per year. The cardiac catheterization equipment is one year old and was purchased for $250,000. It is expected to last five years. The equipment's capacity is 25,000 procedures over its life. Depreciation is computed on a straight-line basis, with no salvage value expected. The reading of the catheterization results is conducted by an outside physician whose fee is $120 per test. The technician's report with the outside physician's note of results is sent to the referring physician. In addition to the salaries and equipment, SJMC spends $50,000 for supplies and other costs needed to operate the equipment (assuming 5,000 procedures are conducted). When SJMC purchased the equipment, it fully expected to perform 5,000 procedures per year. In fact, during…arrow_forwardThe hospital where you are employed is continuing with their analysis with the goal of opening a walk-in clinic. After conducting additional research, the financial projections for the first year of operations are as follows: Revenues (from 10,000 visits): $400,000 Wages and benefits: $220,000 Rent: $5,000 Depreciation: $30,000 Utilities: $2,500 Medical supplies: $50,000 Administrative supplies: $10,000 Assume that all costs are fixed except supply costs, which are variable. Assume that the clinic will be required to pay taxes at a 30% tax rate. Respond to the following questions. Be sure to show your work for all calculations. Prepare the clinic’s projected Profit and Loss (P&L) Statement. 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- Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department Direct Costs  Square  Feet  Laundry Pounds  Housekeeping (HK) $ 80,000  -  16,000  Laundry $ 132,000  500  -  Revenue Areas:        Surgery $ 400,000  1,500  48,000  Semiprivate rooms $ 200,000  2,000  24,000  Maternity $ 150,000  1,000  12,000   The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days.Required:Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue…arrow_forwardA new cardiac catheterization lab was constructed at Havea Heart Hospital. The investment for the lab was $450,000 in equipment costs and $50,000 in renovation costs. A desired return on investment is 12%. Once the lab was constructed, 5,000 patients were served in the first year and were charged $340 for each procedure. The annual fixed cost for the catheterization lab is $1,000,000 and the variable cost is $129 per procedure. a. What is the lab's profit? b. Calculate the ROI for the catheterization lab. b. Does the profit generated meet the hospital's the required ROI? Enter Yes or No for your answer.arrow_forwardLutheran Regional Hospital uses a planning process to define a new radiology service line. The decision matrix gave it a high priority, and administrators want to evaluate its financial feasibility. Estimated fixed costs are $1 million, and the estimated net reimbursement level is $1,500 per procedure. Physician and other provider salaries on a direct basis are $340 per procedure, and total operating expenses will add another $160 per procedure. Calculate the breakeven point for this potential new service line.arrow_forward
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