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    Class Qs Part 2

    Uploaded by

    Muhammad nasir
    The document discusses three questions: 1) Goliath Company is deciding between a month-to-month or 5-year lease for a new machine. The president is concerned the 5-year lease removes flexibility if the new product fails. 2) Oceanview School is preparing its income statement for the coming year. It provides tuition revenue from the past two years to estimate next year's revenue and expenses. 3) Dan's Sandwich Shop reported costs for April and May 2017. It asks to identify each cost as fixed, variable, or mixed and develop a cost estimating equation to predict costs at different production volumes.

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    Class Qs Part 2

    Uploaded by

    Muhammad nasir
    13 views3 pages
    The document discusses three questions: 1) Goliath Company is deciding between a month-to-month or 5-year lease for a new machine. The president is concerned the 5-year lease removes flexibility if the new product fails. 2) Oceanview School is preparing its income statement for the coming year. It provides tuition revenue from the past two years to estimate next year's revenue and expenses. 3) Dan's Sandwich Shop reported costs for April and May 2017. It asks to identify each cost as fixed, variable, or mixed and develop a cost estimating equation to predict costs at different production volumes.

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    The document discusses three questions: 1) Goliath Company is deciding between a month-to-month or 5-year lease for a new machine. The president is concerned the 5-year lease removes flexibility if the new product fails. 2) Oceanview School is preparing its income statement for the coming year. It provides tuition revenue from the past two years to estimate next year's revenue and expenses. 3) Dan's Sandwich Shop reported costs for April and May 2017. It asks to identify each cost as fixed, variable, or mixed and develop a cost estimating equation to predict costs at different production volumes.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    13 views3 pages

    Class Qs Part 2

    Uploaded by

    Muhammad nasir
    The document discusses three questions: 1) Goliath Company is deciding between a month-to-month or 5-year lease for a new machine. The president is concerned the 5-year lease removes flexibility if the new product fails. 2) Oceanview School is preparing its income statement for the coming year. It provides tuition revenue from the past two years to estimate next year's revenue and expenses. 3) Dan's Sandwich Shop reported costs for April and May 2017. It asks to identify each cost as fixed, variable, or mixed and develop a cost estimating equation to predict costs at different production volumes.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Question 1

    Goliath Company makes a number of products and uses a great deal of machinery. A new product this
    coming year will require the acquisition of a new machine. The machine can only be leased, not
    purchased. There are two alternative leasing arrangements: (1) a month-to-month lease that can be
    canceled on 30 days’ notice either by Goliath or the lessor, at a monthly rental of $6,000; and (2) a five-
    year non-cancelable lease at $5,200 per month. The new product is expected to have a life of five years,
    during which annual revenues will be $250,000, annual variable costs $100,000. There are no new fixed
    costs other than the lease payments. The president is concerned that the five-year lease removes a
    great deal of flexibility: if the product does not pan out as expected, the company is stuck with the
    machine and there are no other uses for it. He does, however, like the idea of saving $800 per month.

    Required:
    a. Are the rentals under each of the alternatives, discretionary or committed fixed costs?
    b. Why would the president hesitate between the choices? What could happen to make him regret
    choosing (a) the five-year lease? (b) the month-to-month lease?
    c. Suppose Goliath takes the monthly lease option. It is now the end of the fourth year and
    management expects that sales of the product will be $90,000 in year five, evenly spread over the
    year. Should the firm use the machine for the fifth year?
    d. Answer question C again assuming that the firm had signed the five-year lease.
    Question 2

    Oceanview School, a private high school, is preparing a planned income statement for the coming
    academic year ending August 31, 2013. Tuition revenues for the past two years ending August 31 were
    as follows: 2012, $840,000; and 2011, $880,000. Total expenses for 2012 were $830,000 and in 2011
    were $844,000. No tuition rate changes occurred in 2011 or 2012, nor are any expected to occur in
    2013. Tuition revenue is expected to be $830,000 for 2013. What net income should be planned for
    2013, assuming that the implied cost behavior remains unchanged?
    Question 3

    Dan’s Sandwich Shop reported the following results for April and May 2017.

    Description April May


    Unit sales 2,100 2,700
    Cost of food sold Rs 1,575 Rs 2,025
    Wages and salaries 1,525 1,675
    Rent on building 1,500 1,500
    Depreciation on equipment 200 200
    Utilities 710 770
    Supplies 225 255
    Miscellaneous 113 131
    Total 5,848 6,556

    Required:
    a. Identify each cost as being variable, fixed or mixed.

    b. Develop a schedule identifying the amount of each cost that is fixed per month or variable per
    unit. Total the amounts in each category to develop a cost estimating equation for total monthly
    costs.

    c. Predict total and average costs for monthly volumes of 1,000 units and 2,000 units.

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