Exercise 3.8 Cost Behavior, Flexible and Committed Resources State University's football team just received a bowl game invitation, and the students and alumni are excited. Holiday Travel Agency, located close to campus, decided to put together a bowl game package. For $50,000, a 737 jet could be chartered to take up to 170 people to and from the bowl city. A block of 85 hotel rooms could be confirmed for $400 each (a three-night commitment); Holiday Travel must pay for all the rooms in advance and cannot cancel any of them. The day of the game, a pregame buffet will be catered at $30 per person, and each person will receive a game favor package (consisting of a sweatshirt, a T-shirt, a commemorative pin with the school and bowl logos, and two pompons in the school's colors). All items in the favor package can be purchased by Holiday Travel on December 21 and will cost the agency $25 per set. Buses will be chartered in the bowl city to transport participants to and from the airport and the game. Each bus holds 50 people and can be chartered for $500. The bowl game is scheduled for December 28, and the trip will span three nights-December 26, 27, and 28. Purchasers must reserve their package and pay in full by December 20. Required: 1. List the resources that are mentioned in the above scenario. 2. For each resource, determine (a) whether it is a flexible or committed resource and (b) the type of cost behavior displayed (variable, fixed, mixed, or step cost).
Exercise 3.8 Cost Behavior, Flexible and Committed Resources State University's football team just received a bowl game invitation, and the students and alumni are excited. Holiday Travel Agency, located close to campus, decided to put together a bowl game package. For $50,000, a 737 jet could be chartered to take up to 170 people to and from the bowl city. A block of 85 hotel rooms could be confirmed for $400 each (a three-night commitment); Holiday Travel must pay for all the rooms in advance and cannot cancel any of them. The day of the game, a pregame buffet will be catered at $30 per person, and each person will receive a game favor package (consisting of a sweatshirt, a T-shirt, a commemorative pin with the school and bowl logos, and two pompons in the school's colors). All items in the favor package can be purchased by Holiday Travel on December 21 and will cost the agency $25 per set. Buses will be chartered in the bowl city to transport participants to and from the airport and the game. Each bus holds 50 people and can be chartered for $500. The bowl game is scheduled for December 28, and the trip will span three nights-December 26, 27, and 28. Purchasers must reserve their package and pay in full by December 20. Required: 1. List the resources that are mentioned in the above scenario. 2. For each resource, determine (a) whether it is a flexible or committed resource and (b) the type of cost behavior displayed (variable, fixed, mixed, or step cost).
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Exercise 3.8 Cost Behavior, Flexible and Committed Resources
State University's football team just received a bowl game invitation, and the students and
alumni are excited. Holiday Travel Agency, located close to campus, decided to put together a
bowl game package. For $50,000, a 737 jet could be chartered to take up to 170 people to and
from the bowl city. A block of 85 hotel rooms could be confirmed for $400 each (a three-night
commitment); Holiday Travel must pay for all the rooms in advance and cannot cancel any of
them. The day of the game, a pregame buffet will be catered at $30 per person, and each person
will receive a game favor package (consisting of a sweatshirt, a T-shirt, a commemorative pin
with the school and bowl logos, and two pompons in the school's colors). All items in the favor
package can be purchased by Holiday Travel on December 21 and will cost the agency $25 per
set. Buses will be chartered in the bowl city to transport participants to and from the airport and
the game. Each bus holds 50 people and can be chartered for $500. The bowl game is scheduled
for December 28, and the trip will span three nights-December 26, 27, and 28. Purchasers must
reserve their package and pay in full by December 20.
Required:
1. List the resources that are mentioned in the above scenario.
2. For each resource, determine (a) whether it is a flexible or committed resource and (b) the
type of cost behavior displayed (variable, fixed, mixed, or step cost).
Transcribed Image Text:Exercise 3.11 Types of Costs
Cashion Company produces chemical mixtures for veterinary pharmaceutical companies. Its
factory has four mixing lines that mix various powdered chemicals together according to speci-
fied formulas. Each line can produce up to 5,000 barrels per year. Each line has one supervisor
who is paid $34,000 per year. Depreciation on equipment averages $16,000 per year. Direct
materials and power cost about $4.50 per unit.
Required:
1. Prepare a graph for each of these three costs: equipment depreciation, supervisors' wages,
and direct materials and power. Use the vertical axis for cost and the horizontal axis for
units (barrels). Assume that sales range from 0 to 20,000 units.
2. Assume that the normal operating range for the company is 16,000 to 19,000 units per year.
How would you classify each of the three types of cost?
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