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Accounting Homework

In: Business and Management

Submitted By moyonce
Words 910
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. 1.Rapid Delivery, Inc., operates a parcel delivery service across the nation. The company keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven 150,000 miles per year the average operating cost is 10 cents per mile. This cost increases to 11 cents per mile if a truck is driven only 100,000 miles per year. Assume that all of the activity levels mentioned in this problem are within the relevant range.

Required: A. Using the high-low method, derive the cost formula for truck operating costs. B. Using the cost formula you derived above, what total cost would you expect the company to incur in connection with the truck if it is driven 130,000 miles in a year? Answer:
A.
| | Miles | Cost | | High level | 150,000 | 15,000 | | Low level | 100,000 | 11,000 | | Change | 50,000 | $ 4,000 |

Calculate the per mile variable cost $4,000/$50,000=$0.08

| Total cost at high level | $15,000 | | Less variable element: 12,000 | | Fixed element | $ 3,000 |

Cost formula: Y=$3,000+$0.08X

B. | Variable cost: $10,400 | | Fixed cost 3,000 | | Total cost | $13,400 |

2. Candice Corporation has decided to introduce a new product. The product can be manufactured using either a capital-intensive or labor-intensive method. The manufacturing method will not affect the quality or sales of the product. The estimated manufacturing costs of the two methods are as follows: | | Capital | Labor | | | -intensive | -intensive | | Variable manufacturing cost per unit | $14.00 | $17.60 | | Fixed manufacturing cost per year | $2,440,000 | $1,320,000 | The company's market research department has recommended an introductory selling price of $30 per unit for the new product. The annual fixed selling and administrative expenses of the new…...

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