Exercise 31 Page 82 Goes Down Smooth operates a number of s

Exercise 3-1 Page 82 Goes - Down- Smooth operates a number of smoothie bars in busy suburban malls. The fixed weekly expense of a smoothie bar is $2,500, and the variable cost per smoothie served is $0.75. Required: Fill in the following table with your estimates of total costs and cost per smoothie at the indicated levels of activity for a smoothie bar. Round off the cost of a smoothie to the nearest tenth of a cent. 1. Smoothies Served in a Week 2,100-1-2,800 L 3,500 Fixed cost Variable cost Total cost Cost per smoothic served 2. Does the cost per smoothie increase, decrease, or remai Exercise 3-2 Page 82/83 The data below have been taken from the cost record of the Halifax General Hospital. The data relate the same as the number if smoothies served in a week increases? Explain. to the costs of admitting patients at various levels of patient activity: Number of Patients Admitted Admitting Department Costs Month May June Jul August September October November 3,600 3,800 2,900 3,200 3,300 2,600 $29,400 $30,400 $27.400 $28,000 $28,600 $26,200 $25,600 $29,200 3,500 December Required: 1. Using the high-low method, estimate the fixed cost of admitting patients per month and the hat factors other than the number of patients admited are likely to affect changes in admitt department costs from month to month? variable cost of admissions per patient.

Solution

Answer

3-1

1.

Smoothies Served in a Week

No. of smoothies sold

         2,100

       2,800

         3,500

Fixed Cost

         2,500

       2,500

         2,500

Variable Cost

($0.75 * No. of smoothies sold)

         1,575

       2,100

         2,625

Total Cost (Fixed + Variable)

         4,075

       4,600

         5,125

Cost per smoothie served

(Total Cost / No. of Smoothies sold)

                2

              2

                1

2.

The cost per smoothie will decrease with the increase in No. of units sold and Vice-Versa, as with the increase in sales, the Fixed cost will divide in more units which will lead to decrease in cost per unit and Vice versa.

3.2

High-Low Method

As we can see that in June month the patients admitted are highest and In November Month the patients admitted is Least.

Patients admitted

Cost

June

3,800

30,400

November

2,200

25,600

Difference

1,600

4,800

Variable cost = (High Cost – Low Cost) / (High Patients – Low patients)

= 4,800 / 1,600

Variable cost = $3 per patient admitted

Fixed Cost = Total Cost – Variable cost

Lets take June month, Total Cost = $30,400, Patients admitted = 3,800

Fixed Cost = $30,400 – (3800 Patients * $3 per patient)

Fixed Cost = $19,000

2.

Factors like inflation or deflation will affect the cost from month to month.

	Smoothies Served in a Week
No. of smoothies sold	2,100	2,800	3,500
Fixed Cost	2,500	2,500	2,500
Variable Cost ($0.75 * No. of smoothies sold)	1,575	2,100	2,625
Total Cost (Fixed + Variable)	4,075	4,600	5,125
Cost per smoothie served (Total Cost / No. of Smoothies sold)	2	2	1