Variable Costing Income Statement for a Service Company East Coast Railroad Comp
ID: 2573391 • Letter: V
Question
Variable Costing Income Statement for a Service Company
East Coast Railroad Company transports commodities among three routes (city-pairs): Atlanta/Baltimore, Baltimore/Pittsburgh, and Pittsburgh/Atlanta. Significant costs, their cost behavior, and activity rates for April are as follows:
Operating statistics from the management information system reveal the following for April:
a. Prepare a contribution margin by route report for East Coast Railroad Company for the month of April. Calculate the contribution margin ratio, rounded to one decimal place.
b. Evaluate the route performance of the railroad using the report in (a).
The route performs significantly worse than do the other two routes. A close examination of the operating statistics indicates that this route runs railcars, combined with fairly total mileage. This combination suggests that the railroad is running many trains on the railroad. That is, the railroad’s profitability is sensitive to the size, or length, of the train in railcar terms.
Cost Amount Cost Behavior Activity Rate Labor costs for loading and unloading railcars $156,400 Variable $42.50 per railcar Fuel costs 436,880 Variable 12.70 per train-mile Train crew labor costs 254,560 Variable 7.40 per train-mile Switchyard labor costs 124,384 Variable 33.80 per railcar Track and equipment depreciation 204,200 Fixed Maintenance 136,100 FixedExplanation / Answer
Particulars Activity rate Basis Atlanta/Baltimore Baltimore/Pittsburgh Pittsburgh/Atlanta Total Railcars 350 1930 1400 3680 Train miles 12080 9520 12800 34400 Revenue per railcar $867 $248 $349 Revenues $303,450 $478,640 $488,600 $1,270,690 Variable costs: Labor costs for loading and unloading railcars $42.50 per railcar $14,875.00 $82,025.00 $59,500.00 $156,400.00 Fuel costs $12.70 per train mile $153,416.00 $120,904.00 $162,560.00 $436,880.00 Train crew labor costs $7.40 per train mile $89,392.00 $70,448.00 $94,720.00 $254,560.00 Switchyard labor costs $33.80 per railcar $11,830.00 $65,234.00 $47,320.00 $124,384.00 Total variable costs $269,513.00 $338,611.00 $364,100.00 $972,224.00 Contribution margin $33,937.00 $140,029.00 $124,500.00 $298,466.00 Contribution margin ratio 11.18% 29.26% 25.48% 23.49%
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