4
Cost Behaviour
APPLY WHAT YOU HAVE LEARNED
1.
1. V Direct material
2. V Direct labour
3. F Cost of factory security guard
4. F Straight-line amortization on production equipment
5. M Maintenance on production equipment
6. M Maintenance on factory building
7. V Cost of cleaning supplies used in the factory
8. F Rent on the factory building
9. F Salary for the two factory supervisors
10. F Vice president of manufacturing’s salary
11. M/V Cost of electricity used in the factory
12. M Cost of production machine lubricants
2.
1.
2.
F
F
3. M/V
4. V
5. F
6. F
82
Cost of the car
Insurance cost (or M - Can vary depending upon
insurance company)
Maintenance cost
Cost of gasoline
The cost of a college parking permit
CAA membership
Chapter 4 – Cost Behaviour
3.
1.
2.
3.
4.
5.
6.
F
F
V
V
F
F or M
Rent for the party hall
Cost of the band
Cost of cold drinks
Cost of food
Cost of party decorations
Cost of renting tables and chairs
4.
1.
2.
3.
4.
F
V or M
V
F
Cost of the new office building
Basic telephone service
Cost of lawyers’ salaries
Cost of the receptionist’s wages
5.
1.
F
2.
3.
4.
5.
6.
7.
F
F
F or M
F
M or V
V
Cost of store rent. (or M if the store has entered
into a bonus rent situation)
Basic telephone service
Cost of salaries for the two salespeople
Cost of advertising
Cost of store displays
Cost of electricity
Cost of merchandise sold
6.
The accounting department finds it difficult to use the scatter
diagram because this diagram does not present a very linear
pattern. Without a clear linear pattern, the cost estimates used
might bear little correlation to the actual cost behaviour of the
truck maintenance. The accounting department could derive
precise calculations of the cost behaviour for truck maintenance
with a regression analysis. Because no one knows how to
accomplish this, the accountants can use the high-low method,
which approximates the results obtained with regression analysis.
The high-low method is a quick, easy, and low-cost method to
approximate the fixed and variable cost of truck maintenance.
Chapter 4 – Cost Behaviour
83
7.
Diagram (a) is preferred because the relationship between the x
and y is more linear and, therefore, it is easier to predict
outcomes at various levels of production.
8.
a.
High
Low
Difference
Sales
$2,860,000
2,300,000
$ 560,000
Selling Expense
$369,400
347,000
$ 22,400
Variable rate = $22,400 / $560,000
= $0.04 of selling expense for each $1 of sales
b.
TC = FC + (unit variable rate x volume)
$347,000 = FC + (0.04 x $2,300,000)
FC = $347,000 – $92,000
FC = $255,000
or
TC = FC + (unit variable rate x volume)
$369,400 = FC + (0.04 x $2,860,000)
FC = $369,400 – $114,400
FC = $255,000
c.
84
TC = FC + (unit variable rate x volume)
TC = $255,000 + (.04 x $2,500,000)
TC = $255,000 + $100,000
TC = $355,000
Chapter 4 – Cost Behaviour
9.
a.
High
Low
Difference
Units
15,300
14,500
800
Packaging Cost
$33,191
32,567
$ 624
Variable rate = $624 / 800 units
= $0.78 packaging cost for each unit packaged
b.
TC = FC + (unit variable rate x volume)
$32,567 = FC + ($0.78 x 14,500)
FC = $32,567 – $11,310
FC = $21,257
or
TC = FC + (unit variable rate x volume)
$33,191 = FC + ($0.78 x 15,300)
FC = $33,191 – $11,934
FC = $21,257
c.
TC = FC + (unit variable rate x volume)
TC = $21,257 + ($0.78 x 15,000)
TC = $21,257 + $11,700
TC = $32,957
Chapter 4 – Cost Behaviour
85
10.
a. High
Low
Difference
Inspections
48,600
41,950
6,650
Inspection Cost
$83,790
77,273
$ 6,517
Variable rate = $6,517 / 6,650 inspections
= $0.98 of inspection cost for each inspection
b.
TC = FC + (unit variable rate x volume)
$77,273 = FC + ($0.98 x 41,950)
FC = $77,273 – $41,111
FC = $36,162
or
TC = FC + (unit variable rate x volume)
$83,790 = FC + ($0.98 x 48,600)
FC = $83,790 – $47,628
FC = $36,162
c.
TC = FC + (unit variable rate x volume)
TC = $36,162 + ($0.98 x 45,000)
TC = $36,162 + $44,100
TC = $80,262
86
Chapter 4 – Cost Behaviour
11.
Machine Hours
a. High
120,000
Low
100,000
Difference
20,000
Electricity Cost
$221,600
188,000
$ 33,600
Variable rate = $33,600 / 20,000 hours
= $1.68 of electricity for each machine hour
b.
TC = FC + (unit variable rate x volume)
$221,600 = FC + ($1.68 x 120,000)
FC = $221,600 – $201,600
FC = $20,000
or
TC = FC + (unit variable rate x volume)
$188,000 = FC + ($1.68 x 100,000)
FC = $188,000 – $168,000
FC = $20,000
c.
TC = FC + (unit variable rate x volume)
TC = $20,000 + ($1.68 x 122,500)
TC = $20,000 + $205,800
TC = $225,800
Chapter 4 – Cost Behaviour
87
12.
Copies Produced
a. High
77,800
Low
52,550
Difference
25,250
Cost
$2,592.82
1,961.57
$ 631.25
Variable rate = $631.25 / 25,250 copies
= $0.025 of service and supply cost for each
copy produced
b.
TC = FC + (unit variable rate x volume)
$1,961.57 = FC + ($0.025 x 52,550)
FC = $1,961.57 – $1,313.75
FC = $647.82
or
TC = FC + (unit variable rate x volume)
$2,592.82 = FC + ($0.025 x 77,800)
FC = $2,592.82 – $1,945
FC = $647.82
c.
88
TC = FC + (unit variable rate x volume)
TC = $647.82 + ($0.025 x 75,000)
TC = $647.82 + $1,875
TC = $2,522.82
Chapter 4 – Cost Behaviour
13.
a. High
Low
Difference
Parts Handled
185,400
154,300
31,100
Cost
$10,675.37
9,244.77
$ 1,430.60
Variable rate = $1,430.60 / 31,100 copies
= $0.046 of service and material handling cost
for each part handled
b.
TC = FC + (unit variable rate x volume)
$10,675.37 = FC + ($0.046 x 185,400)
FC = $10,675.37 – $8,528.40
FC = $2,146.97
or
TC = FC + (unit variable rate x volume)
$9,244.77 = FC + ($0.046 x 154,300)
FC = $9,244.77 – $7,097.80
FC = $2,146.97
c.
TC = FC + (unit variable rate x volume)
TC = $2,146.97 + ($0.046 x 160,000)
TC = $2,146.97 + $7,360
TC = $9,506.97
Chapter 4 – Cost Behaviour
89
14.
High
Low
Difference
Units
18,000
15,000
3,000
Shipping Cost
$35,400
30,000
$ 5,400
Variable rate = $5,400 / 3,000 units
= $1.80 of shipping expense for each unit sold
TC = FC + (unit variable rate x volume)
$35,400 = FC + ($1.80 x 18,000)
FC = $35,400 – $32,400
FC = $3,000
TC = FC + (unit variable rate x volume)
TC = $3,000 + ($1.80 x 16,500)
TC = $3,000 + $29,700
TC = $32,700
15.
High
Low
Difference
Flight Hours Operating Cost
1,875
$2,148,125
1,250
1,563,750
625
$ 584,375
Variable rate = $584,375 / 625 hours
= $935 of operating expense per flight hour
TC = FC + (unit variable rate x volume)
$2,148,125 = FC + ($935 x 1,875)
FC = $2,148,125 – $1,753,125
FC = $395,000
TC = FC + (unit variable rate x volume)
TC = $395,000 + ($935 x 1,500)
TC = $395,000 + $1,402,500
TC = $1,797,500
90
Chapter 4 – Cost Behaviour
16.
High
Low
Difference
Number
190
150
40
Operating Cost
$8,601
7,741
$ 860
Variable rate = $860 / 40
= $21.50 of operating expense for each charter
TC = FC + (unit variable rate x volume)
$8,601 = FC + ($21.50 x 190)
FC = $8,601 – $4,085
FC = $4,516
TC = FC + (unit variable rate x volume)
TC = $4,516.00 + ($21.50 x 185)
TC = $4,516.00 + $3,977.50
TC = $8,493.50
17.
a.
High
Low
Difference
Number
3,000
1,000
2,000
Operating Cost
$140,000
80,000
$ 60,000
Variable rate = $60,000 / 2,000
= $30 of operating expense per purchase order
b.
TC = FC + (unit variable rate x volume)
$140,000 = FC + ($30 x 3,000)
FC = $140,000 – $90,000
FC = $50,000
c.
TC = FC + (unit variable rate x volume)
TC = ($50,000 x 4) + ($30 x 7,000)
TC = $200,000 + $210,000
TC = $410,000
Chapter 4 – Cost Behaviour
91
18. a.
92
Chapter 4 – Cost Behaviour
18. (Continued)
Note to Instructor: Each student’s graph will vary. Likewise,
each of their calculations of variable cost per purchase order and
fixed costs will vary. When you examine a number of the students’
computations of the total cost, you will find that they are
reasonably similar.
The variable cost per purchase order is found by comparing
two coordinates on the graph:
Orders
Cost
3,500
$155,000
1,500
100,000
2,000
$ 55,000
$55,000 / 2,000 = $27.50
a.
The fixed cost for one quarter is $60,000
b.
TC = FC + (UVC x V)
TC = ($60,000 x 4) + ($27.50 x 7,000)
TC = $240,000 + 192,500
TC = $432,500
Note to Instructor: To judge the merits of each method, consider
that the regression model for these data computes fixed costs per
quarter at $59,000 and the variable cost per order at $28. Using
the regression model, the total cost formula is:
TC = FC + (UVC x V)
TC = ($59,000 x 4) + ($28 x 7,000)
TC = $236,000 + $196,000
TC = $432,000
Chapter 4 – Cost Behaviour
93
19.
a.
High
Low
Difference
Number
15,000
9,000
6,000
Operating Cost
$58,231.51
46,297.51
$11,934.00
Variable cost = $11,934 / 6,000
= $1.989 of operating expense per invoice
b.
c.
TC = FC + (UVC x V)
$58,231.51 = FC + ($1.989 x 15,000)
FC = $58,231.51 – $29,835.00
FC = $28,396.51
TC = FC + (UVC x V)
TC = ($28,396.51 x 4) + ($1.989 x 45,000)
TC = $113,586.04 + $89,505.00
TC = $203,091.04
20.
a.
High
Low
Difference
Number
130
105
25
Operating Cost
$26,529.16
25,212.91
$ 1,316.25
Variable cost = $1,316.25 / 25
= $52.65 of operating expense per repair
b.
TC = FC + (UVC x V)
$26,529.16 = FC + ($52.65 x 130)
FC = $26,529.16 – $6,844.50
FC = $19,684.66
c.
TC = FC + (UVC x V)
TC = ($19,684.66 x 4) + ($52.65 x 450)
TC = $78,738.64 + $23,692.50
TC = $102,431.14
94
Chapter 4 – Cost Behaviour
21.
a.
High
Low
Difference
Number
12,100
7,000
5,100
Production Cost
$20,500
14,992
$ 5,508
Variable cost = $5,508 / 5,100
= $1.08 of production cost per broom.
b.
TC = FC + (UVC x V)
$20,500 = FC + ($1.08 x 12,100)
FC = $20,500 – $13,068
FC = $7,432
c.
TC = FC + (UVC x V)
TC = $7,432 + ($1.08 x 12,000)
TC = $7,432 + $12,960
TC = $20,392
Chapter 4 – Cost Behaviour
95
22. a.
96
Chapter 4 – Cost Behaviour
22. (Continued)
Note to Instructor: Each student’s graph will vary. Likewise,
each of their calculations of variable cost per broom produced and
fixed costs will vary. When you examine a number of the students’
computations of the total cost, you will find that they are
reasonably similar.
The variable cost per broom produced is found by comparing
two coordinates on the graph:
Brooms
Cost
14,000
$22,000
6,000
14,000
8,000
$ 8,000
$8,000 / 8,000 = $1.00
b.
c.
The total fixed cost per the graph is $9,000.
TC = FC + (UVC x V)
TC = $9,000 + ($1.00 x 12,000)
TC = $9,000 + $12,000
TC = $21,000
Note to Instructor: To judge the merits of each method, consider
that the regression model for these data computes fixed costs per
quarter at $8,017 and the variable cost per broom at $0.9861.
Using the regression model, the total cost formula is:
TC = FC + (UVC x V)
TC = $8,017 + ($0.9861 x 12,000)
TC = $8,017 + $11,833
TC = $19,850
Chapter 4 – Cost Behaviour
97
23.
a.
High
Low
Difference
Number
35
15
20
Cost
$78,000
42,000
$36,000
Variable rate = $36,000/20
= $1,800 of cost per session
b.
TC = FC + (UVC x V)
$78,000 = FC + ($1,800 x 35)
FC = $78,000 – $63,000
FC = $15,000 per quarter
c.
TC = FC + (UVC x V)
TC = $15,000 + ($1,800 x 25)
TC = $15,000 + $45,000
TC = $60,000
98
Chapter 4 – Cost Behaviour
24. a.
Chapter 4 – Cost Behaviour
99
24.
Note to Instructor: Each student’s graph will vary. Likewise,
each of their calculations of variable cost per session and fixed
costs will vary. When you examine a number of the students’
computations of the total cost, you will find that they are
reasonably similar.
The variable cost per session is found by comparing two
coordinates on the graph:
Sessions
Cost
40
$90,000
10
30,000
30
$60,000
$60,000 / 30 = $2,000
b.
The total fixed costs from the graph are $10,000.
c.
TC = FC + (UVC x V)
TC = $10,000 + ($2,000 x 25)
TC = $10,000 + $50,000
TC = $60,000
Note to Instructor: To judge the merits of each method, consider
that the regression model for these data computes fixed costs per
quarter at $11,250 and the variable cost per session at $1,980.
Using the regression model, the total cost formula is:
TC = FC + (UVC x V)
TC = $11,250 + ($1,980 x 25)
TC = $11,250 + $49,500
TC = $60,750
100
Chapter 4 – Cost Behaviour
25.
a.
High
Low
Difference
Tests
140,000
50,000
90,000
Testing Cost
$1,860,000
1,290,000
$ 570,000
Variable cost = $570,000 / 90,000
= $6.333 of testing cost for each test given
b.
TC = FC + (UVC x V)
$1,860,000 = FC + ($6.333 x 140,000)
FC = $1,860,000 – $886,620
FC = $973,380
c.
TC = FC + (UVC x V)
TC = $973,380 + ($6.333 x 125,000)
TC = $973,380 + $791,625
TC = $1,765,005
Chapter 4 – Cost Behaviour
101
26. a.
102
Chapter 4 – Cost Behaviour
26. (Continued)
Note to Instructor: Each student’s graph will vary. Likewise,
each of their calculations of variable cost per test performed and
fixed costs will vary. When you examine a number of the students’
computations of the total cost, you will find that they are
reasonably similar.
The variable cost per test is found by comparing two
coordinates on the graph:
Tests
Cost
160,000 $1,960,000
20,000 1,150,000
140,000 $ 810,000 $810,000/140,000 = $5.786 per test
b.
c.
Fixed costs from the graph are $1,025,000
TC = FC + (UVC x V)
TC = $1,025,000 + ($5.786 x 125,000)
TC = $1,025,000 + $723,250
TC = $1,748,250
Note to Instructor: To judge the merits of each method, consider
that the regression model for these data computes fixed costs per
quarter at $1,026,101 and the variable cost per test at $5.82.
Using the regression model, the total cost formula is:
TC = FC + (UVC x V)
TC = $1,026,101 + ($5.82 x 125,000)
TC = $1,026,101 + $727,500
TC = $1,753,601
Chapter 4 – Cost Behaviour
103
27.
Cost of Goods Sold
High
Low
Difference
Cost
$920,000
800,000
$120,000
Sales
$1,150,000
1,000,000
$ 150,000
Variable cost = $120,000 / $150,000
= $0.80 of COGS for each dollar of sales
TC = FC + (UVC x V)
$920,000 = FC + ($0.80 x 1,150,000)
FC = $920,000 – $920,000
FC = 0
Sales Commissions
Cost
High
$17,250
Low
15,000
Difference
$ 2,250
Sales
$1,150,000
1,000,000
$ 150,000
Variable cost = $2,250 / $150,000
= $0.015 of sales commission per sales dollar
TC = FC + (UVC x V)
$17,250 = FC + ($0.015 x 1,150,000)
FC = $17,250 – $17,250
FC = 0
Store Rent
High
Low
Difference
Cost
$3,000
3,000
0
Sales
$1,150,000
1,000,000
$ 150,000
Variable cost = $0 / $150,000
= $0.0 of store rent for each dollar of sales
TC = FC + (UVC x V)
$3,000 = FC + ($0 x 1,150,000)
FC = $3,000
104
Chapter 4 – Cost Behaviour
27. (Continued)
Amortization
High
Low
Difference
Cost
$20,000
20,000
$
0
Sales
$1,150,000
1,000,000
$ 150,000
Variable cost = $0 / $150,000
= $0.0 of Amortization for each dollar of sales
TC = FC + (UVC x V)
$20,000 = FC + ($0 x 1,150,000)
FC = $20,000
Maintenance
High
Low
Difference
Cost
$4,100
3,800
$ 300
Sales
$1,150,000
1,000,000
$ 150,000
Variable cost = $300 / $150,000
= $0.002 of maintenance cost per sales dollar
TC = FC + (UVC x V)
$4,100 = FC + ($0.002 x 1,150,000)
FC = $4,100 – $2,300
FC = $1,800
Office Salaries
High
Low
Difference
Cost
$35,500
34,000
$ 1,500
Sales
$1,150,000
1,000,000
$ 150,000
Variable cost = $1,500 / $150,000
= $0.01 of office salaries for each dollar of
sales
Chapter 4 – Cost Behaviour
105
27. (Continued)
TC = FC + UVC x V
$35,500 = FC + ($0.01 x 1,150,000)
FC = $35,500 – $11,500
FC = $24,000
28.
Direct Material
High
Low
Difference
Units
326,000
257,000
69,000
Cost
$775,880
611,660
$164,220
Variable rate = $164,220 / 69,000
= $2.38 of Direct Material for each unit
TC = FC + (UVC x V)
$775,880 = FC + ($2.38 x 326,000)
FC = $775,880 – $775,880
FC = 0
Direct Labour
High
Low
Difference
Units
326,000
257,000
69,000
Cost
$2,109,220
1,662,790
$ 446,430
Variable rate = $446,430 / 69,000
= $6.47 of Direct Labour for each unit
TC = FC + (UVC x V)
$2,109,220 = FC + ($6.47 x 326,000)
FC = $2,109,220 – $2,109,220
FC = 0
106
Chapter 4 – Cost Behaviour
28. (Continued)
Manufacturing Overhead Units
High
326,000
Low
257,000
Difference
69,000
Cost
$1,868,760
1,781,820
$ 86,940
Variable rate = $86,940 / 69,000
= $1.26 of manufacturing overhead per unit
TC = FC + (UVC x V)
$1,868,760 = FC + ($1.26 x 326,000)
FC = $1,868,760 – $410,760
FC = $1,458,000
Chapter 4 – Cost Behaviour
107
29.
Cost of Goods Sold
Cost
High
$112,500
Low
75,000
Difference
$ 37,500
Sales
$150,000
100,000
$ 50,000
Variable cost = $37,500 / $50,000
= $0.75 of COGS for each dollar of sales
TC = FC + (UVC x V)
$112,500 = FC + ($0.75 x 150,000)
FC = $112,500 – $112,500
FC = 0
Sales Commissions Cost
High
$ 7,500
Low
5,000
Difference
$ 2,500
Sales
$150,000
100,000
$ 50,000
Variable cost = $2,500 / $50,000
= $0.05 of sales commission per dollar of sales
TC = FC + (UVC x V)
$7,500 = FC + ($0.05 x 150,000)
FC = $7,500 – $7,500
FC = 0
Store Rent
High
Low
Difference
Cost
$ 1,000
1,000
$
0
Sales
$150,000
100,000
$ 50,000
Variable cost = $0 / $50,000
= $0.0 of Store Rent for each dollar of sales
108
Chapter 4 – Cost Behaviour
29. (Continued)
TC = FC + (UVC x V)
$1,000 = FC + ($0 x 150,000)
FC = $1,000 – $0
FC = $1,000
Amortization
High
Low
Difference
Cost
$ 500
500
$ 0
Sales
$150,000
100,000
$ 50,000
Variable cost = $0 / $50,000
= $0.0 of amortization for each dollar of sales
TC = FC + (UVC x V)
$500 = FC + ($0 x 150,000)
FC = $500 – $0
FC = $500
Maintenance
High
Low
Difference
Cost
$ 250
200
$ 50
Sales
$150,000
100,000
$ 50,000
Variable cost = $50 / $50,000
= $0.001 of maintenance per dollar of sales
TC = FC + (UVC x V)
$250 = FC + ($0.001 x 150,000)
FC = $250 – $150
FC = $100
Chapter 4 – Cost Behaviour
109
29. (Continued)
Office Salaries Cost
High
$6,000
Low
5,000
Difference $1,000
Sales
$150,000
100,000
$ 50,000
Variable rate = $1,000 / $50,000
= $0.02 of office salaries per dollar of sales
TC = FC + (UVC x V)
$6,000 = FC + ($0.02 x 150,000)
FC = $6,000 – $3,000
FC = $3,000
b.
30.
1.
2.
3.
4.
110
The information provided in requirement a describes the cost
behaviour of each cost. This helps decision makers budget
costs for the future.
Y c f
a d
b b
X a b
Chapter 4 – Cost Behaviour
31.
The high-low method approximates the true relationship
between fixed and variable costs in a total cost formula. It is quick
and easy to compute, but only considers two observations from
the entire body of available data. It does not afford the opportunity
to determine if a linear relationship exists between the costs and
the volume in the given situation.
The scatter graph method presents a visual picture of the
total cost behaviour over a number of measurement points. The
picture allows the reader to see how linear the relationship is and
any data that fall outside the normal results. The decision maker
must attempt to draw a line that represents the mean of the data
points. The point at which the line intersects the Y axis at zero
activity is the fixed cost amount. The slope of the line is the
variable cost per unit. The line provides the total cost for any
activity amount along the line. Even though this method uses
visual estimation, the method provides a more robust result than
the high-low method, because all of the observations are
incorporated into the solution and the decision maker can visually
evaluate the linearity of the data.
Regression analysis provides a very accurate description of
the relationship between cost and activity. Although most
spreadsheet software contains regression models that are easy to
use, regression analysis requires more knowledge than either the
scatter graph method or the high-low method. The data output is
as easy to use as the data output of the other methods.
32.
Students’ answers will vary but should include the basic
information contained in the answer to Problem 31 plus their own
recommendation.
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33.
Delivery Expense Number
Expense
High
700
$26,480
Low
600
25,480
Difference
100
$ 1,000
Variable cost = $1,000/100
= $10 of Delivery Expense for each delivery
TC = FC + (UVC x V)
$26,480 = FC + ($10 x 700)
FC = $26,480 – $7,000
FC = $19,480
2004:
Number of Deliveries
Cost under Proposal @ $30
Cost under Current System
Savings over Proposal
1,250
$37,500
31,980 (19,480 + [1,250 x 10])
$ 5,520
2005:
Number of Deliveries
Cost under Proposal @ $30
Cost under Current System
Savings over Proposal
1,775
$53,250
37,230 (19,480 + [1,775 x 10])
$16,020
Sznadel should reject the proposal because as the number of
deliveries grows, the cost of outsourcing the deliveries will
become much higher than delivering within the organization.
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Chapter 4 – Cost Behaviour
34.
Each student group’s analysis will vary but should describe
the fixed costs of the merchandising business including such
things as straight-line amortization of furniture and equipment,
insurance, monthly salaries, and rent. The variable costs should
include product and packaging. Mixed costs include many other
costs such as telephone, utilities, wages, and advertising.
35.
To:
Mr. Al Palmer
From:
The costs of your new playground will consist of a number of
fixed, variable, and mixed costs. A fixed cost is the same
regardless of the number of hours of operation, variable costs
relate directly to the number of hours of operation, and mixed
costs have some fixed amount and some variable amount.
The fixed cost of the playground includes the amortization
that will occur each year on the equipment and the building
addition. In addition, the property taxes and property insurance
will increase because of the building and equipment. You might
also need to increase the personal injury liability insurance to
include the risk of children being hurt, lost, or endangered.
Variable costs of operating the playground include the salary
of the childcare workers, payroll taxes, employee benefits, paper
supplies, food and drink that you might serve, and utilities. These
will vary in proportion to the number of hours of operation.
Mixed costs include repairs and maintenance on the
equipment and space because these costs will be partly routine
and partly dependent upon the amount of usage.
If we can analyze each of these costs, we can determine the
overall fixed costs of the operation and the variable cost per hour.
We can construct the projected revenues and expenses to allow
you to make the best possible decision about this project.
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