The Gilbert Bicycle Co. operates a repair shop on Louis Street. Jim, the owner, has calculated his overhead costs per year to be $10,000 plus $10 per bike repaired. In late 1997, he prepared a budget for repairing 500 bikes in 1998. He actually repaired 550 bikes in 1998 and spent $15,200 for over- head expenses. 

Required: 

Comment on each of the following statements about 1998 activities? 

(a) His cost function is ($10,000/500)+ $10, or $30 per bike. 

(b) His spending was $300 under his adjusted budget; therefore, he did control costs well. 

(c) His original budget for 1998 (prepared in late 1997) was $15,500. 

(d) His spending was $200 over his original budget; therefore, he did not control costs well.

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7-12. Flexible Budgeting. The Gilbert Bicycle Co. operates a repair shop on Louis Street. Jim, the owner, has calculated his overhead costs per year to be $10,000 plus $10 per bike repaired. In late 1997, he prepared a budget for repairing 500 bikes in 1998. He actually repaired 550 bikes in 1998 and spent $15,200 for over- head expenses. Required: Comment on each of the following statements about 1998 activities? (a) His cost function is ($10,000/500)+ $10, or $30 per bike. (b) His spending was $300 under his adjusted budget; therefore, he did control costs well. (c) His original budget for 1998 (prepared in late 1997) was $15,500. (d) His spending was $200 over his original budget; therefore, he did not control costs well.