Chapter 2

University surchargeUtilitiesWildcat Lair costs:FixedVariablePurchases of prepared food $23,892Serving personnel$28,408 Cashier6,000 Administration10,860 University surcharge7,240Utilities1,800 Totals$47,068 $31,132Variable cost = $31,132 ÷ $72,400= 0.43= 43%Combining fixed and variable costs, the cost function is:Cost Formula: Total Cost = $47,068+ 43%× Total RevenueTotal Revenue is the most likely cost driver for both variable costs. Food costs are likely to vary proportionately with sales, and the University surcharge is specifically based on sales.Problem 2.46 (Part Level Submission)Cost Formula: Total Cost = $47,068 + 43% × $84,000= $83,188Profit = $84,000 − $83,188= $812Problem 2.46 (Essay)The university’s Wildcat Lair has been reporting losses in past months. In July, for example, the loss was $5,000:Revenue$70,000 ExpensesPurchases of prepared food $21,000 Serving personnel30,000 Cashier5,500 Administration10,000 FixedN/AVariableTotal RevenueFixedN/A

University surcharge7,000 Utilities1,500 75,000 Loss$ (5,000)The Lair purchases prepared food directly from University Food Services. The charge varies proportionately with the number and kind of meals served. Personnel who are paid by the Lair serve the food, tend the cash register, bus and clean tables, and wash dishes. The staffing levels in the Lair rarely change; the existing staff can usually handle daily fluctuations in volume. Administrative costs are primarily the salaries of the Lair manager and her office staff. The university charges the Lair a surcharge of 10% of its revenue. Utility costs are the costs of cooling, heating, and lightin

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