Cost Behavior, Classification

Smith Concrete Company owns enough ready-mix trucks to deliver up to 150,000 cubic yards of concrete per year (considering each truck's capacity, weather, and distance to each job). Total truck depreciation is $200,000 per year. Raw materials (cement, gravel, and so on) cost about $51 per cubic yard of cement.

Required:

1. On your own paper, prepare a graph for truck depreciation. Use the vertical axis for cost and the horizontal axis for cubic yards of cement. Select the following amounts from the graph.

Depreciation cost of truck if it delivers 30,000 cubic yards of concrete in one year. $fill in the blank 1

Depreciation cost of truck if it delivers 70,000 cubic yards of concrete in one year. $fill in the blank 2

2. On your own paper, prepare a graph for raw materials. Use the vertical axis for cost and the horizontal axis for cubic yards of cement. Select the following amounts from the graph.

Cost of raw materials for 2,000 cubic yards of concrete. $fill in the blank 3

Cost of raw materials for 5,000 cubic yards of concrete. $fill in the blank 4

3. Assume that the normal operating range for the company is 90,000 to 96,000 cubic yards per year. Classify truck depreciation and raw materials as variable or fixed costs.

Truck depreciation
Raw materials cost

2.

Cost Behavior

Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,600,000 + $300X, where X = Number of Heart Stents. Last year, Alisha produced 51,000 stents. Actual maintenance costs for the year were as expected.

Required:

If required, round your answers to the nearest cent.

1. What is the total maintenance cost incurred by Alisha last year? $fill in the blank 1

2. What is the total fixed maintenance cost incurred by Alisha last year? $fill in the blank 2

3. What is the total variable maintenance cost incurred by Alisha last year? $fill in the blank 3

4. What is the maintenance cost per unit produced? $fill in the blank 4per unit

5. What is the fixed maintenance cost per unit? $fill in the blank 5per unit

6. What is the variable maintenance cost per unit? $fill in the blank 6per unit

3.

Mixed Costs and Cost Formula

Ben Palman owns an art gallery. He accepts paintings and sculpture on consignment and then receives 20% of the price of each piece as his fee. Space is limited, and there are costs involved, so Ben is careful about accepting artists. When he does accept one, he arranges for an opening show (usually for three hours on a weekend night) and sends out invitations to his customer list. At the opening, he serves wine, soft drinks, and appetizers to create a comfortable environment for prospective customers to view the new works and to chat with the artist. On average, each opening costs $500. Ben has given as many as 20 opening shows in a year. The total cost of running the gallery, including rent, furniture and fixtures, utilities, and a part-time assistant, amounts to $120,000 per year.

Required:

1. Assume that the cost driver is number of opening shows. Develop the cost formula for the gallery's costs for a year.

2. Using the cost formula developed above, what is the total cost for Ben in a year with 12 opening shows? $fill in the blank 2

Using the cost formula developed above, what is the total cost for Ben in a year with 14 opening shows? $fill in the blank 3