Revenue (200 contracts x $250) + (1,250 hours × $80) $150,000 Operating expenses: Driver wages and benefits (S35 per hour × 1,250 hours) Depreciation on limousines 43,750 19,000 Fuel costs ($12.80 per hour x 1,250 hours) 16,000 Maintenance 18,400 Liability and casualty insurance Advertising Administrative expenses 2,500 10,500 24,200 Total expenses 134,350 Operating income $ 15,650 All expenses are fixed, with the exception of driver wages and benefits and fuel costs, which are both variable per hour. During May, the company's limousines were fully booked. In June, Wu expects that Exclusive Limousines will be operating near capacity. Shelly Worthington, a prominent Washington socialite, has asked Wu to bid on a large charity event she is hosting in late June. The limousine company she had hired has canceled at the last minute, and she needs the service of five limousines for four hours each. She will only hire Exclusive Limousines if they take the entire job. Wu checks his schedule and finds that he only has three limousines available that day. 1. If Wu accepts the contract with Worthington, he would either have to (a) cancel two prom contracts each for one car for six hours or (b) cancel one business event for three cars contracted for two hours each. What are the relevant opportunity costs of accepting the Worthington contract in each case? Which contract should he cancel? Required 2. Wu would like to win the bid on the Worthington job because of the potential for lucrative future busi- ness. Assume that Wu cancels the contract in requirement 1 with the lowest opportunity cost, and assume that the three currently available cars would go unrented if the company does not win the bid. What is the lowest amount he should bid on the Worthington job? 3. Another limousine company has offered to rent Exclusive Limousines two additional cars for $300 each per day. Wu would still need to pay for fuel and driver wages on these cars for the Worthington job. Should Wu rent the two cars to avoid canceling either of the other two contracts?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Opportunity costs and relevant costs. Jason Wu operates Exclusive Limousines, a eet of 10 limousines used for weddings, proms, and business events in Washington, D.C. Wu charges customers a at fee of $250 per car taken on contract plus an hourly fee of $80. His income statement for May follows:
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images