Problem 1 -
REQUIRED: Various costs associated with different factory operations are given below. Classify each cost as being either variable or fixed with respect to the number of units produced and sold by placing an X under Variable or Fixed. Also indicate whether each cost is a selling or administrative cost OR a product cost by placing an X under Selling & Admin. Exp. or Product. Finally, for all identified Product costs only, classify each as Direct Materials, Direct Labor, or Overhead with an X under the appropriate heading.
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Cost Item
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Cost Behavior
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Type of Cost
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For Product Costs Only
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Variable
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Fixed
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Selling & Admin. Exp.
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Product
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Direct Material
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Direct Labor
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Mfg. Overhead
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1. Overtime paid to factory janitorial staff
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2. Insurance on a building used in producing Barbie dolls
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3. Cost of workers painting wheelbarrows that are sold
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4. The CFO's salary
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5. Water used to cool down factory machines
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6. Commissions paid to sales staff
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7. Fees paid to Google for advertising
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8. Sugar used in cake production
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9. Rent on a factory building
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10. Lubricants needed for factory machines
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11. Cost of plastic case in which product is sold
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12. Shipping costs incurred from factory to customer
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13. Insurance costs on corporate headquarters
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14. Depreciation on factory lunchroom facilities
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15. Personnel costs of the purchasing department
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16. Salaries of factory janitorial staff
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17. Cost of laborers assembling a product
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18. Depreciation of air purification equipment used in the factory
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19. Wages paid to assembly line workers
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20. CEO's bonus
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Problem 2 -
Starbucks owns and operates a restaurant, ABC. His fixed costs are $21,000 per month. He serves lunches and dinners. The average total bill (excluding tax and tip) is $19 per customer meal. Queen's present variable costs average $10.60 per meal.
REQUIRED:
a. What is the break-even point in number of meals served per month?
b. How many meals must he serve to attain a profit before taxes of $8,400 per month?
c. Queen's rent and other fixed costs rise to a total of $29,925 per month and variable costs also rise to $12.50 per meal. Queen decides to raise his average price to $23. His accountant, however, says that he will likely lose 10% of his customers. To offset the loss of customers, Queen decides to hire a pianist to play 4 hours a night at a cost of $2,000 per month. Assume that this will increase total monthly meals to 3,450. What will Queen's profit be now?