a) Compute the charge per child, using the equation method. b) What is the contribution per child? What is the contribution margin ratio? Calculate Tiny Tot's break-even point in number of children and in sales dollars. .1. dollars

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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Question 1
Tiny Tots Daycare Centre provides daycare for children Mondays through Fridays. The
business had $140,000 of net income in 2015, when 50 students were enrolled and data for
variable costs per child and total fixed costs were as follows:
Cost Schedule:
Variable Costs:
Lunch & snacks
Education Supplies
Other supplies (toiletries etc.)
$1,000
750
250
$2,000
Fixed Costs:
Rent
Utilities
Insurance
Salaries
Miscellaneous
$20,000
3,000
3,000
30,000
4.000
$60,000
Required:
Compute the charge per child, using the equation method.
What is the contribution per child? What is the contribution margin ratio?
а)
b)
c)
Calculate Tiny Tot's break-even point in number of children and in sales dollars.
d)
Calculate the margin of safety in number of children and sales dollars.
Given the expected enrolment of 50 children, prepare a contribution margin income
statement for the year ended December 31, 2015, detailing the components of total
fixed costs, and clearly showing contribution and operating income.
e)
Assuming that normal enrollment at the Daycare Centre is 50 children; construct a
f)
break-even chart, clearly showing the break-even point in units and sales dollars and
the margin of safety in units and in sales dollars.
Assume that Tiny Tots target operating income is $156,000 per month. Calculate the
8)
number of children that must be enrolled for this goal to be realized. Is this a realistic
goal?
h) Tiny Tots lost its lease and had to move to another building. Monthly rental for the
new building is $28,000. At the suggestion of the parents, Tiny Tots plans to take the
children on outings. Monthly cost for the outing is $10,000. By how much should Tiny
Tots increase monthly fees to meet the target operating income of $156,000 per
month, assuming the expected enrolment of 50 children?
Transcribed Image Text:Question 1 Tiny Tots Daycare Centre provides daycare for children Mondays through Fridays. The business had $140,000 of net income in 2015, when 50 students were enrolled and data for variable costs per child and total fixed costs were as follows: Cost Schedule: Variable Costs: Lunch & snacks Education Supplies Other supplies (toiletries etc.) $1,000 750 250 $2,000 Fixed Costs: Rent Utilities Insurance Salaries Miscellaneous $20,000 3,000 3,000 30,000 4.000 $60,000 Required: Compute the charge per child, using the equation method. What is the contribution per child? What is the contribution margin ratio? а) b) c) Calculate Tiny Tot's break-even point in number of children and in sales dollars. d) Calculate the margin of safety in number of children and sales dollars. Given the expected enrolment of 50 children, prepare a contribution margin income statement for the year ended December 31, 2015, detailing the components of total fixed costs, and clearly showing contribution and operating income. e) Assuming that normal enrollment at the Daycare Centre is 50 children; construct a f) break-even chart, clearly showing the break-even point in units and sales dollars and the margin of safety in units and in sales dollars. Assume that Tiny Tots target operating income is $156,000 per month. Calculate the 8) number of children that must be enrolled for this goal to be realized. Is this a realistic goal? h) Tiny Tots lost its lease and had to move to another building. Monthly rental for the new building is $28,000. At the suggestion of the parents, Tiny Tots plans to take the children on outings. Monthly cost for the outing is $10,000. By how much should Tiny Tots increase monthly fees to meet the target operating income of $156,000 per month, assuming the expected enrolment of 50 children?
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