Problem 1 Indentify the costs below as variable, fixed, or mixed. Moctezuma Furn

Question

Problem 1

Indentify the costs below as variable, fixed, or mixed. Moctezuma Furniture Corporation incurred the following costs.

1. Wood used in the production of furniture.
2. Fuel used in delivery trucks.
3. Straight-line depreciation on factory building.
4. Screws used in the production of furniture.
5. Sales staff salaries.
6. Sales commissions.
7. Property taxes.
8. Insurance on buildings
9. Hourly wages of furniture craftsmen.
10. Salaries of factory supervisors.
11. Utilities expense.
12. Telephone bill.

Problem 2

The San Marcos Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $50 a night. Operating costs are as follows:

Costs Amount
Salaries 8,500 per month
Utilities 2,000 per month
Depreciation 1,000 per month
Maintenance 500 per month
Maid service 5 per room
Other costs 33 per room

(a) Determine the inn’s break-even point in
1. Number of rented rooms per month and
2. Dollars

(b) If the inn plans on renting an average of 50 rooms per day (assuming a 30-day month), what is
1. The monthly margin of safety in dollars and
2. The margin of safety ratio

Explanation / Answer

1. V 2. V 3.F 4. V 5. F 6.V 7.F 8.F 9. V 10. M 11. M 12. M Fixed costs are 12,000. Variable margin is $12 /room/night (50-33-5) So break-even is 12,000/12= 1,000 room rentals or $50,000. If they rent 1,500 rooms (50*30) the margin of safety is 500*12= $6000. Ratio is 6,000/50,000= 3/25= 12%

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