BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

Solutions

Chapter
Section
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
25 views

Cost Behavior, High-Low Method, Pricing Decision

Fonseca, Ruiz, and Dunn is a large, local accounting firm located in a southwestern city. Carlos Ruiz, one of the firm’s founders, appreciates the success his firm has enjoyed and wants to give something back to his community. He believes that an inexpensive accounting services clinic could provide basic accounting services for small businesses located in the barrio. He wants to price the services at cost.

Since the clinic is brand new, it has no experience to go on. Carlos decided to operate the clinic for 2 months before determining how much to charge per hour on an ongoing basis. As a temporary measure, the clinic adopted an hourly charge of $25, half the amount charged by Fonseca, Ruiz, and Dunn for professional services.

The accounting services clinic opened on January 1. During January, the clinic had 120 hours of professional service. During February, the activity was 150 hours. Costs for these two levels of activity usage are as follows:

Chapter 3, Problem 62P, Cost Behavior, High-Low Method, Pricing Decision Fonseca, Ruiz, and Dunn is a large, local

Required:

  1. 1. Classify each cost as fixed, variable, or mixed, using hours of professional service as the activity driver.
  2. 2. Use the high-low method to separate the mixed costs into their fixed and variable components. (Note: Round variable rates to two decimal places and fixed amounts to the nearest dollar.)
  3. 3. Luz Mondragon, the chief paraprofessional of the clinic, has estimated that the clinic will average 140 professional hours per month. If the clinic is to be operated as a nonprofit organization, how much will it need to charge per professional hour ? How much of this charge is variable? How much is fixed? (Note: Round answers to two decimal places.)
  4. 4. CONCEPTUAL CONNECTION Suppose the accounting center averages 170 professional hours per month. How much would need to be charged per hour for the center to cover its costs ? Explain why the per-hour charge decreased as the activity output increased. (Note: Round answers to two decimal places.)

1.

To determine

Categorize the activities into fixed cost, variable cost or mixed cost.

Explanation

Cost:

Cost can be defined as the cash and cash equivalent which is incurred against the products or its related services which will benefit the organization in the future. There are two types of costs that are fixed and variable costs. Combination of fixed and variable is referred to as mixed cost.

Serial NumberActivitiesCategorize
1Senior accountantFi...

2.

To determine

Divide the mixed costs into fixed and variable components with the help of high-low method.

3.

To determine

Calculate the value of total cost and charge per hour. Also, calculate the fixed cost and variable cost.

4.

To determine

Calculate the value of charge per hour when the number of professional hours is 170 hours.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are some differences in the analysis for a replacement project versus that for a new expansion project?

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

Use a production possibilities frontier to describe the idea of efficiency.

Principles of Microeconomics (MindTap Course List)

CONSTANT GROWTH You are considering an investment in Keller Corporations stock, which is expected to pay a divi...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)