Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

S5-2 Analyzing Cost Behavior and the Impact on Profit LO 5-1 Ink Spot Inc. is a new business located in upstate New York. It prints

S5-2 Analyzing Cost Behavior and the Impact on Profit LO 5-1 Ink Spot Inc. is a new business located in upstate New York. It prints promotional flyers for local businesses and distributes them at public places or area events. The flyers are either placed on the windshield of cars in parking lots or distributed by hand to people. Page 255 Ink Spot's owner, Dana Everhart, is facing a difficult decision. She could purchase a commercial printer and produce the flyers in house. However, the machinery, costing approximately $20,000, is quite expensive. The printer has an estimated useful life of four years and would be depreciated using the straight-line method with no salvage value. If Dana purchases the printer, she would also have to buy paper and toner for the machine and pay for maintenance or repairs as needed. She estimates that it would cost $0.02 per page to print the flyers herself. Alternatively, Dana could pay a local printing company $0.05 per copy to print the flyers. She would incur no printing costs other than the $0.05 per page if she chooses this alternative. However, $0.05 per page is considerably more than Dana would have to pay for paper and toner if she owned a commercial printer. Dana plans to charge customers $0.08 per page for each flyer Ink Spot distributes. Required: 1. Why does Dana need to understand cost behavior? How does it impact Dana and her business? 2. Name at least three costs in addition to the cost of producing the flyers that a business such as Ink Spot would incur, and describe the cost behavior of each one. 3. Considering the decision Dana must make, determine the cost behavior of each alternative. For any mixed cost, 3. Considering the decision Dana must make, determine the cost behavior of each alternative. For any mixed cost, determine the amount of the variable and fixed components as much as possible. 4. Discuss other factors about Ink Spot's operating environment that Dana should consider when deciding whether to make the flyers or buy them from a local printing company. 5. Discuss factors other than cost that Dana should considerimage text in transcribedimage text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Using Microsoft Excel And Access 2013 For Accounting

Authors: Glenn Owen

4th Edition

1305161858, 9781305161856

More Books

Students also viewed these Accounting questions