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Book is Advanced Cost Accounting: Horngren, C. T., Foster, G., Datar, S. M., Rajan, M., & Ittner, C. (2012). Cost accounting: A managerial emphasis(14th ed.). Upper Saddle River, NJ: Prentice

Problem 3-34

CVP, target operating income, service firm. KinderKids provides daycare for children Mondays through Fridays. Its monthly variable costs per child are as follows:

Lunch and snacks	$100
Educational supplies	30
Other supplies (paper products, toiletries, etc.)	20
Total	$150

Monthly fixed costs consist of the following:

Rent	$1,500
Utilities	150
Insurance	200
Salaries	1,700
Miscellaneous	450
Total	$4,000

KinderKids charges each parent $400 per child per month.

Required

1. Calculate the breakeven point.

2. KinderKids target operating income is $5,000 per month. Compute the number of children who must be enrolled to achieve the target operating income.

3. KinderKids lost its lease and had to move to another building. Monthly rent for the new building is $2,200. At the suggestion of parents, KinderKids plans to take children on field trips. Monthly costs of the field trips are $1,100. By how much should KinderKids increase fees per child to meet the target operating income of $5,000 per month, assuming the same number of children as in requirement 2?

Problem 3-35

CVP analysis, margin of safety. (CMA, adapted) Arvin Tax Preparation Services has total budgeted revenues for 2014 of $618,000, based on an average price of $206 per tax return prepared. The company would like to achieve a margin of safety percentage of at least 45%. The companys current fixed costs are $327,600, and variable costs average $24 per customer. (Consider each of the following separately).

Required

1. Calculate Arvins breakeven point and margin of safety in units.

2. Which of the following changes would help Arvin achieve its desired margin of safety?

a. Average revenue per customer increases to $224.

b. Planned number of tax returns prepared increases by 15%

c. Arvin purchases new tax software that results in a 5% increase to fixed costs but e-files all tax returns, which reduces mailing costs an average $2 per customer.