Fundamentals Of Cost Accounting (6th Edition)
6th Edition
ISBN: 9781259969478
Author: WILLIAM LANEN, Shannon Anderson, Michael Maher
Publisher: McGraw Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 1, Problem 40P
Cost Data for Managerial Purposes
You have been asked by two of your friends, Marco and Jenna, to settle a (friendly) argument they are having about splitting the cost of a road trip during Spring Break. They will take Jenna’s car and they have agreed to “share the cost” of the drive. Based on current fuel prices and the mileage of Jenna’s car, the fuel cost is roughly $0.20 per mile. Marco says he should pay about $0.13 per mile for the fuel, plus a small amount ($0.03) for other variable costs (such as routine maintenance). Jenna says that he should pay 50 percent of $0.56, which is the current rate the Internal Revenue Service (IRS) allows for the use of a personal car. In addition to fuel and routine maintenance, the IRS rate is designed to cover “wear and tear” on the car. Marco argues that the wear and tear would occur whether he went on the trip or not.
Required
- a. What would you recommend Marco pay Jenna per mile for sharing the car? Explain briefly.
- b. Would your answer to Requirement (a) change depending on whether or not Jenna was going to take the trip, whether or not Marco went along? Explain briefly.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Tate Inc. and Booth Inc. are two small manufacturing companies that are considering leasing a cutting machine together. If Tate rents the machine on its own, it will cost $26,000. If Booth rents the machine alone, it will cost $14,000. If they rent the machine together, the cost will decrease to $36,000.
Q. Calculate Tate’s and Booth’s respective share of fees using the Shapley value method
A truck manufacturer can produce one more
truck if it hires another employee for $40,000.
It can also produce one more truck if it buys
$50,000 worth of machinery. A truck sells on
the market for $60,000. The truck
manufacturer should
a. Hire employees until the cost of the
next employee equals the cost of
buying machinery to produce another
truck
b. Buy machinery until the cost of buying
machinery to produce another car
equals the cost of hiring another
employee
С.
Sell machinery and lay off employees
d. Lay off employees and buy machinery
e.
None of the above
The Pet Paradise Pet Shop, specialized in selling pet houses, is currently facing profitability challenges. The founder, Lisa,
recognizes your expertise in business knowledge and financial acumen and seeks your advice to determine crucial sales
targets for breaking even and achieving specific profit margins. Key Financial Parameters: Fixed Costs: The fixed costs for
Pet Paradise Pet Shop amount to $25,000 annually. Variable Costs: The variable cost associated with each pet house
sold is $150. Product Price: The selling price for each pet product is $450. Goals for Analysis: Lisa wants to understand
the sales targets required to achieve the following financial milestones: a. Break-even Point: Determine the number of
pet houses Pet Paradise needs to sell annually to cover the fixed and variable costs, resulting in a break-even situation. b
. Profit of $50,000: Identify the sales volume needed to generate a profit of $50,000 after covering fixed and variable
costs. c. Profit of…
Chapter 1 Solutions
Fundamentals Of Cost Accounting (6th Edition)
Ch. 1 - Explain why it is important to consider the...Ch. 1 - Explain the differences between financial...Ch. 1 - Place the letter of the appropriate accounting...Ch. 1 - Distinguish among the value chain, the supply...Ch. 1 - Who are the customers of cost accounting?Ch. 1 - How can cost accounting information together with...Ch. 1 - Prob. 7RQCh. 1 - Does the passage of Sarbanes-Oxley mean that codes...Ch. 1 - Prob. 9CADQCh. 1 - Prob. 10CADQ
Ch. 1 - Prob. 11CADQCh. 1 - Its not the job of accounting to determine...Ch. 1 - Prob. 13CADQCh. 1 - How would cost accounting information help...Ch. 1 - Airlines are well known for using complex pricing...Ch. 1 - Hostess Brands makes a variety of baked goods just...Ch. 1 - What potential conflicts might arise between...Ch. 1 - Refer to the Business Application discussion of...Ch. 1 - Prob. 19CADQCh. 1 - Why does a cost accountant need to be familiar...Ch. 1 - Will studying cost accounting increase the chances...Ch. 1 - Prob. 22CADQCh. 1 - Value Chain and Classification of Costs Apple...Ch. 1 - Pfizer Inc., a pharmaceutical firm, incurs many...Ch. 1 - Tesla, Inc., incurs many types of costs in its...Ch. 1 - Prob. 26ECh. 1 - Accounting Systems McDonalds is a major company in...Ch. 1 - Accounting Systems Ford Motor Company manufactures...Ch. 1 - Cost Data for Managerial Purposes As an analyst at...Ch. 1 - Prob. 30ECh. 1 - Prob. 31ECh. 1 - Refer to the information in Exercise 1-31. The...Ch. 1 - Refer to Exhibit 1.5, which shows budgeted versus...Ch. 1 - Trends in Cost Accounting Required For each cost...Ch. 1 - Prob. 35ECh. 1 - Prob. 36ECh. 1 - Refer to the information in Exercise 1-32. Jon...Ch. 1 - Prob. 38PCh. 1 - Cost Data for Managerial Purposes Imperial Devices...Ch. 1 - Cost Data for Managerial Purposes You have been...Ch. 1 - Prob. 41PCh. 1 - Cost Data for Managerial Purposes Campus Package...Ch. 1 - Cost Data for Managerial Purposes KC Services...Ch. 1 - Cost Data for Managerial Purposes B-You is a...Ch. 1 - Cost Data for Managerial Purposes Toms Tax...Ch. 1 - Gilman’s Café is a popular restaurant in a local...Ch. 1 - Prob. 47PCh. 1 - Prob. 48PCh. 1 - Refer to Exhibit 1.5, which shows budgeted versus...Ch. 1 - Cost Data for Managerial PurposesFinding Unknowns...Ch. 1 - Prob. 51PCh. 1 - Prob. 52PCh. 1 - Prob. 53ICCh. 1 - Miller Cereals is a small milling company that...Ch. 1 - Before Miller Cereals can introduce the new...Ch. 1 - The following story is true except that all names...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Common costs. Tate Inc. and Booth Inc. are two small manufacturing companies that are considering leasing a cutting machine together. If Tate rents the machine on its own, it will cost $26,000. If Booth rents the machine alone, it will cost $14,000. If they rent the machine together, the cost will decrease to $36,000.arrow_forwardAssume that you have decided to drive your car to Florida for the spring break. A classmate learns about your plans and asks about riding along with you. Required: Select how you would apply each of the following cost concepts to the task of determining how much, if any, cost you would take into consideration for the purposes of setting a price to be charged for taking the classmate with you. a. Differential cost b. Allocated cost c. Sunk cost d. Opportunity cost How to allocate? Based on number of people, weight, number of suitcases, or what? What are other opportunities for you to earn revenue? What is the cost of alternative travel for your classmate? What costs have already been incurred and cannot be recovered, even if you don't make the trip? What costs will differ if a friend comes along?arrow_forwardAssume that you have decided to drive your car to Florida for the spring break. A classmate learns about your plans and asks about riding along with you. Required: Select how you would apply each of the following cost concepts to the task of determining how much, if any, cost you would take into consideration for the purposes of setting a price to be charged for taking the classmate with you. a. Differential cost b. Allocated cost c. Sunk cost d. Opportunity costarrow_forward
- Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand is $50.00. Her best guess is that she can sell 300 cups per week at $0.50 per cup. The variable cost of producing a cup of lemonade is $0.20. a. Given her other assumptions, what level of sales volume will enable Julie to break even? b. Given her other assumptions, discuss how a change in sales volume affects profit. c. Given her other assumptions, discuss how a change in sales volume and variable cost jointly affect profit.arrow_forwardElise and her friend Eloi developed an online car repair training course and sell it for $67.50 per course. The contribution margin per course is $23.00 and to break-even they need to have a total revenue of $32,000.00 per annum. a. What is the break-even volume? Round up to the next whole number b. What is the fixed costs per annum? Round to the nearest cent c. What is the total revenue if they sell 3,050 courses this year?arrow_forwardAlyssa Stuart is thinking of starting a store that specializes in handmade Viennese style bentwood chairs. Before opening her store, Alyssa is curious about how her profit, revenue, and variable costs will change depending on the amount she charges for the chairs. Alyssa would like you to perform the work required for this analysis and has given you the data. Here are a few things to consider while you perform your analysis: Current competitive prices for Viennese style bentwood chairs are between $225 and $275 a chair. Variable costs will be either $100 or $150 a chair depending on the types of material Alyssa chooses to use. Fixed costs are $10,000 a month. Create an Excel file containing the following information: Alyssa's chairs - Price One Alyssa's chairs - Price Two Chair Price $ 225 Chair Price $ 275 Variable Cost per chair $ 125 Variable Cost per chair $ 150 Fixed Cost $ 10,000 Fixed Cost $…arrow_forward
- Mary Williams, owner of Williams Products, is evaluating whether to introduce a new product line. After thinking through the production process and the costs of raw materials and new equipment, Williams estimates the variable costs of each unit produced and sold at $6 and the fixed costs per year at $60,000.a. If the selling price is set at $18 each, how many units must be produced and sold for Williams to break even? Use both graphic and algebraic approaches to get your answer.b. Williams forecasts sales of 10,000 units for the first year if the selling price is set at $14 each. What would be the total contribution to profits from this new product during the first year?c. If the selling price is set at $12.50, Williams forecasts that first-year sales would increase to 15,000 units. Which pricing strategy ($14.00 or $12.50) would result in the greater total contribution to profits?d. What other considerations would be crucial to the final decision about making and marketing the new…arrow_forwardGwen is the managerial accountant in charge of Company A, which sellswater bottles. She previously determined that the fixed costs of Company A consist ofproperty taxes, a lease, and executive salaries, which add up to P500,000. Thevariable cost associated with producing one water bottle is P80 per unit. The waterbottle is sold at a premium price of P500. a. Formulate the total cost function.b. Formulate the revenue function.c. Formulate the profit function.d. Determine the breakeven quantity and the breakeven sales.e. Use the graphical method to determine the breakeven point.arrow_forward1) Your delivery business uses a rental truck, In an attempt to estimate future truck rental costs you have collected the following information: Month Miles driven Rental cost of truck January February 600 $585 620 588 March 580 574 April 640 591 May 700 610 June 680 598 If you drive the truck 640 miles in July, what should the total rental cost be? Use the high/low method. Do you think this is a decent estimate of what the cost will be? Why?arrow_forward
- a) Kerry Kase purchased purchase a new computer for her Travel Agency The price with VAT was 3599 and the VAT was 20 what was the cost ex VAT? b) Kerry Kase worked out that the cost of a tour she wants to organise came up to 735 she adds a 90 commission in order to have a selling price of 825 ex VAT The VAT is 20 what will be the final price with VAT Instructions.Describe your process and calculate the 2 prices accordinglyarrow_forwardDanielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle’s first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is very intent on purchasing the warehouse because be believes that more storage space is needed. Jerrod asks Danielle into his office and the following conversation takes place: Jerrod: Danielle, you’re new here, aren’t you? Danielle: Yes, I am. Jerrod: Well, Danielle, I’m not at all pleased with capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don’t get it, where am I going to place out output? Danielle: Well, we need to get product into our customer’s hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers don’t lie; the warehouse does not…arrow_forwardJuan Fox’ has started her own company, Foxy Jeans, which manufactures imprinted jeans. Since he just begun this operation, he rents the equipment from a local printing shop when necessary. The cost of using the equipment is P3,000. The materials used in one jean cost P200, and he can sell it at 350. Requirements: Provide for a mathematical model that will show how to maximize the profit. IF Juan sells 100 jeans, what will his total revenues, total costs, and profit? How many jeans must Juan sell to have zero profit and zero loss (break-even)?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Elements of cost | Direct and Indirect: Material, Labor, & Expenses; Author: Educationleaves;https://www.youtube.com/watch?v=UFBaj6AHjHQ;License: Standard youtube license