FOR ACE WRITES

Practice Exercise 7–I: Analyzing Mixed Costs

Don't use plagiarized sources. Get Your Custom Essay on
FOR ACE WRITES
Get a PLAGIARISM-FREE custom essay written for you!

The Metropolis Health System (MHS) has a system-wide training course for nurse aides. The course requires a packet of materials that MHS calls the training pack. Due to turnover and because the course is system-wide, there is a monthly demand for new packs. In addition, the local community college also obtains the training packs used in their credit courses from MHS.

The education coordinator needs to know how much of the cost is fixed and how much of the cost is variable for these training packs. She decides to use the high–low method of computation.

Required

Using the monthly utilization information presented below, find the fixed and variable portion of costs through the high–low method.

Month                            Number of Training Packs                                     Cost

January                                           1,000                                                      \$6,200

February                                         200                                                         \$1,820

March                                             250                                                         \$2,350

April                                               400                                                         \$3,440

May                                                700                                                         \$4,900

June                                                300                                                         \$2,730

July                                                150                                                          \$1,470

August                                           100                                                          \$1,010

September                                     1,100                                                       \$7,150

October                                         300                                                          \$2,850

November                                     250                                                          \$2,300

December                                     100                                                          \$1,010

Exercise 7–1: Analyzing Mixed Costs

The education coordinator decides that the community college packs may be unduly influencing the high–low computation. She decides to rerun the results, omitting the community college volume.

1. Using the monthly utilization information presented here, and omitting the community college training packs, find the fixed and variable portion of costs through the high–low method. Note that the college only acquires packs in three months of the year: January, May, and September. These dates coincide with the start dates of their semesters and summer school.

2.  The reason the education coordinator needs to know how much of the cost is fixed is because she is supposed to collect the appropriate variable cost from the community college for their packs. For her purposes, which computation do you believe is better? Why?

Month   Total Number of Training Packs    Total Cost    Community College Number Packs                  Community College Cost

January      1,000                                            \$6,200                      200                                \$1,240

February    200                                               \$1,820

March        250                                               \$2,350

April          400                                               \$3,440

May           700                                               \$4,900                     300                                \$2,100

June           300                                               \$2,730

July           150                                                \$1,470

August      100                                                \$1,010

September 1,100                                            \$7,150                    300                                 \$1,950

October     300                                               \$2,850

November 250                                              \$2,300

December 100                                               \$1,010

Example 7B: Contribution Margin

Computation of a contribution margin is simplified if the fixed and variable expense has already been determined. Examine Table 7–1, which contains Operating Room fixed and variable costs. We can see that the total costs are \$1,217,756. Of this amount, \$600,822 is designated as variable cost and \$616,934 is designated as fixed (\$529,556 1 \$87,378 = \$616,934). For purposes of our example, assume the Operating Room revenue amounts to \$1,260,000. The contribution margin is computed as follows:

Amount

Revenue                                                         \$1,260,000

Less Variable Cost                                            (600,822)

Contribution Margin                                         \$659,178

Thus, \$659,178 is available to contribute to fixed costs and to profit. (In this example fixed costs amount to \$616,934, so there is an amount left to contribute toward profit.)

Practice Exercise 7–II: Calculating the Contribution Margin

Greenside Clinic has revenue totaling \$3,500,000. The clinic has costs totaling \$3,450,000. Of this amount, 40% is variable cost and 60% is fixed cost.

Compute the contribution margin for Greenside Clinic.

Exercise 7–2: Calculating the Contribution Margin

The Mental Health program for the Community Center has just completed its fiscal year end. The program director determines that his program has revenue for the year of \$1,210,000. He believes his variable expense amounts to \$205,000 and he knows his fixed expense amounts to \$1,100,000.

Required

1.         Compute the contribution margin for the Community Center Mental Health Program.

2.         What does the result tell you about the program?

Pages (550 words)
Approximate price: -

Plagiarism Free Papers

All our papers are original and written from scratch. We will email you a plagiarism report alongside your completed paper once done.

Free Revisions

All papers are submitted ahead of time. We do this to allow you time to point out any area you would need revision on, and help you for free.

Free Title-page

Free Bibliography

Originality & Security

At Homework Sharks, we take confidentiality seriously and all your personal information is stored safely and do not share it with third parties for any reasons whatsoever. Our work is original and we send plagiarism reports alongside every paper.

Our agents are online 24/7. Feel free to contact us through email or talk to our live agents.

Try it now!

Calculate the price of your order

We'll send you the first draft for approval by at
Total price:
\$0.00

How it works?

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Our Services

We work around the clock to see best customer experience.

Flexible Pricing

Our prces are pocket friendly and you can do partial payments. When that is not enough, we have a free enquiry service.