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House Corporation Board (HCB) of Tri-Gamma Sorority is responsible for the operation of a two-story sorority house on the State University campus. HCB has set a normal capacity of 60 women. At any given point in time, there are 100 members of the chapter: 60 living in the house and 40 living elsewhere (e.g., in the freshman dorms on campus). HCB needs to set rates for the use of the house for the coming year. The following costs are budgeted: $240,000 fixed and $34,800 variable. The fixed costs are fairly insensitive to the number of women living in the house. Food is budgeted at $40,000 and is included in the fixed costs; food does not seem to vary greatly given the stated capacity. The variable expenses consist of telephone bills and some of the utilities. HCB is not responsible for chapter dues, party fees, pledging and initiation fees, and other social expenditures. Women living in the house eat 20 meals per week there and live in a two-person room. (All in-house members’ rooms, bathroom facilities, etc., are on the second floor.) All members eat Monday dinner at the house and have full use of house facilities (e.g., the two TV lounges, kitchens, access to milk and cereal at any time, study facilities, and so on). HCB has traditionally set two rates: one for in-house members and one for out-of-house members. There are 32 weeks in a school year. Required: 1. Discuss the factors that might go into determining the charging rate for the two types of sorority members. 2. Set charging rates for the in-house and out-of-house members.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 7, Problem 40P
Textbook Problem
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House Corporation Board (HCB) of Tri-Gamma Sorority is responsible for the operation of a two-story sorority house on the State University campus. HCB has set a normal capacity of 60 women. At any given point in time, there are 100 members of the chapter: 60 living in the house and 40 living elsewhere (e.g., in the freshman dorms on campus). HCB needs to set rates for the use of the house for the coming year. The following costs are budgeted: $240,000 fixed and $34,800 variable. The fixed costs are fairly insensitive to the number of women living in the house. Food is budgeted at $40,000 and is included in the fixed costs; food does not seem to vary greatly given the stated capacity. The variable expenses consist of telephone bills and some of the utilities. HCB is not responsible for chapter dues, party fees, pledging and initiation fees, and other social expenditures. Women living in the house eat 20 meals per week there and live in a two-person room. (All in-house members’ rooms, bathroom facilities, etc., are on the second floor.) All members eat Monday dinner at the house and have full use of house facilities (e.g., the two TV lounges, kitchens, access to milk and cereal at any time, study facilities, and so on).

HCB has traditionally set two rates: one for in-house members and one for out-of-house members. There are 32 weeks in a school year.

Required:

  1. 1. Discuss the factors that might go into determining the charging rate for the two types of sorority members.
  2. 2. Set charging rates for the in-house and out-of-house members.

1.

To determine

Discuss the factors that determine the charging rate for the two types of sorority members.

Explanation of Solution

Single charging rate: Single charging rate is similar to a plant wide overhead rate wherein all support department costs are accumulated in the numerator and some measure of usage is in the denominator.

  • Obviously, few expenses relate to women living in the house, while others relate to all members. Most of the food, most of the variable expenses and second floor is used by in-house members...

2.

To determine

Calculate the charging rates for the in-house and out-of-house members.

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Chapter 7 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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