The Bowl-O-Mat operates a small chain of bowling alleys in southern Florida. Bowl-OMat’s president, Al Palmer, is considering adding a supervised playground facility to each of the bowling alley properties. The playgrounds would require that a small addition be built onto each of the bowling alley buildings. Each playground would include a swing, a slide, climbing bars, and some other small-scale playground equipment. Each child would be charged an admission fee to use the facility. It is expected that parents will stay at the bowling alleys longer while their children are occupied in the playground area.

Mr. Palmer is interested in obtaining cost information relative to the proposed playground project. He understands that the more hours each playground area is open for business, the higher the cost of operating the playground will be. Beyond that, he knows nothing of cost behavior patterns.

Required: Prepare a memorandum to Mr. Palmer that describes the following:

a. The various variable, fixed, and mixed costs that are likely to be associated with the new playground facilities.

b. The concept of fixed costs, variable costs, and mixed costs.

c. Why an understanding of the methods available for estimating cost behavior patterns will help him to better plan and control his operations.