## J Bryant, Ltd. is a local  coat retailer. The store’s accountant prepared

J Bryant, Ltd. is a local  coat retailer. The store’s accountant prepared the following income statement for the month ended  January 31:

Bryant sells its coats for \$200 each. Selling expenses consist of fixed costs plus a commission of \$6 per  coat. Administrative expenses consist of fixed costs plus a variable component equal to 6% of sales.

Required

a. Prepare a contribution format income statement for January.

b. Using the format y = mx + b, develop a cost formula for total expenses.

c. If 4,000 coats are sold next month, what is the expected total contribution margin?

## The Carpenter Company sells sports decals  that can be personalized with a

The Carpenter Company sells sports decals  that can be personalized with a player’s name, team name, and jersey number for \$16 each. Carpenter  buys the decals from a supplier for \$9 each and spends an additional \$3 in variable operating costs per  decal. The results of last month’s operations are as follows:

Sales revenue . . . . . . . . \$35,200

Cost of goods sold . . . . . .19,800

Gross profit . . . . . .. . . . . . 15,400

Operating expenses . . . . .  8,700

Operating income . . . . . .  \$6,700

Required

Prepare a contribution format income statement for the Carpenter Company.

## Anthony Herrera recently fulfilled his long-time dream of opening a gym that

Anthony Herrera recently fulfilled his long-time dream of opening a gym that offers spinning exercise classes for \$10 per person. To differentiate his gym and better serve  his clients, Anthony provides a towel, a bottle of water, and an after-workout protein shake to each person  participating in a class, at a cost of \$2.65 per person. Anthony employs four part-time instructors and pays  them each \$1,500 per month. He also pays himself a monthly salary of \$6,500. Anthony’s other monthly  costs are \$1,800 for rent, \$1,350 for depreciation on his 30 bikes, and \$1,425 in utilities and insurance.

Required

a. What is Anthony’s contribution margin per unit?

b. What is Anthony’s contribution margin ratio?

c. Prepare Anthony’s monthly contribution format income statement. Assume that he teaches 4,500 clients.

## Erin Smith sells gourmet chocolate chip cookies. The results of her last

Erin Smith sells gourmet chocolate chip cookies. The results of her last month of operations are as follows:

Sales revenue. . . . . . . . . . . . . . . . . . . . . . . \$50,000

Cost of goods sold (all variable) . . . . . . . . . 26,250

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . .23,750

Selling expenses (75% variable) . . . . . . . . . . 8,000

Administrative expenses (25% variable) . . .13,000

Operating income . . . . . . . . . . . . . . . . . . . . . . \$2,750

Required

a. Prepare a contribution format income statement for Erin.

b. If Erin sells her cookies for \$2 each, how many cookies did she sell during the month?

c. What is the contribution margin per cookie?

d. What is Erin’s contribution margin ratio?

## The Aust Corporation has  gathered the following data on its copy machine

The Aust Corporation has  gathered the following data on its copy machine costs for the first eight months of the year.

Required

a. Prepare a scattergraph of the cost information and then choose a line that you believe best represents the cost function. Represent your chosen line with a cost equation of the form y = mx + b.  Show your calculations.

b. Using the high-low method, what is the variable cost per copy?

c. Using the high-low method, what is the fixed cost per month?

d. Using the high-low method, represent the cost function with a cost equation of the form y = mx + b.

e. Using your cost equation from part (d), provide your best estimate of the copy costs for September if 62,000 copies will be made. Why does your estimate differ from the \$5,800 cost incurred in June?

## Angie March owns a catering  company that stages banquets and parties for

Angie March owns a catering  company that stages banquets and parties for both individuals and companies. The business is seasonal,  with heavy demand during the summer months and year-end holidays and light demand at other times.  Angie has gathered the following cost information from the past year:

Required

a. Using the high-low method, compute the overhead cost per labor hour and the fixed overhead cost  per month.

b. Angie has booked 4,200 labor hours for the coming month. How much overhead should she expect  to incur?

c. If Angie books one more catering job for the month, requiring 350 labor hours, how much additional overhead should she expect to incur?

d. Angie recently attended a meeting of the local Chamber of Commerce, at which she heard an  accounting professor discuss regression analysis and its business applications. After the meeting,  Angie enlisted the professor’s assistance in preparing a regression analysis of the overhead data  she collected. This analysis yielded an estimated fixed cost of \$47,810 per month and a variable cost  of \$3.73 per labor hour. Why do these estimates differ from your high-low estimates, calculated in  part (a)?

## Harlan Gravity Grips produces spike sets for track shoes.  CEO Brittany Harlan

Harlan Gravity Grips produces spike sets for track shoes.  CEO Brittany Harlan has gathered the following information about the company’s sales volume and  marketing cost for the past six months.

Required

a. Using the high-low method, compute the variable marketing cost per spike set.

b. Compute the total fixed marketing cost.

c. Represent the marketing cost function in equation form.

d. Examine the data and identify the potential outlier.

e. Recalculate the marketing cost function, removing the potential outlier.

f. Which of the two cost functions you calculated would be appropriate to use in estimating future  marketing costs? Why?

## Mike Johnson is reviewing transportation costs incurred by his Chicago sales team.

Mike Johnson is reviewing transportation costs incurred by his Chicago sales team. When salespeople make sales calls, they  typically use taxis, and Mike wants to develop a way to estimate what those fares should be. Mike has  obtained taxi fare data from the Chicago Data Portal and is asking you to develop a model he can use to  predict fares for his team.

The Excel data file for answering this problem can be found in WileyPLUS.

Required

a. Prepare a visualization of the data set using the CHART tool in Excel to create an XY scattergraph  chart. Prepare one chart with trip length in seconds and fare and one chart with trip miles and fare.  Comment on what the visualization reveals.

b. Use the SLOPE and INTERCEPT functions in Excel to develop a cost estimation equation based on  trip miles. Round your answers to two decimal places.

c. Use the SLOPE and INTERCEPT functions in Excel to develop a cost estimation equation based on  trip time (in seconds). Round your answers to two decimal places.

d. Using these two estimation equations, what is the expected taxi fare for a trip of 2.5 miles taking 850  seconds? Round your answer to two decimal places.

e. Some of the data points appear to be missing values—a fare of \$0, distance traveled of 0 miles and/  or travel time of 0 seconds. Remove these data points from the data set and repeat parts b, c, and d.

f. In reality, taxi fares are based on both time and distance traveled. How would you revise your estimation equations to incorporate this reality?

## Refer to Exhibit  2.11.Data From Exhibit 2.11:Requireda. What is Universal Sports Exchange’s

Refer to Exhibit  2.11.

Data From Exhibit 2.11:

Required

a. What is Universal Sports Exchange’s operating profit equation?

b. If Universal Sports Exchange sells 55,000 jerseys, what total expense will be reported on the  income statement?

c. The Daily News Journal has approached Martin Keck, Universal’s vice president for sales, with a  \$20,000 annual ad campaign. If Martin accepts the ad campaign, what will change in Universal’s  operating profit equation?

d. Assume that Martin Keck accepts the Daily News Journal’s ad campaign and as a result Universal  sells 65,000 jerseys. Prepare the contribution format income statement for the year.

## Bohlander Botanicals develops hybrid tea roses. A relative  newcomer to the field,

Bohlander Botanicals develops hybrid tea roses. A relative  newcomer to the field, Bohlander is looking for innovative ways to advertise its products to potential customers. Rose Mayfield, sales manager and avid online shopper, wonders about advertising the company’s roses on various gardening websites. She has contacted Kimland Media, Inc., an advertising  firm specializing in Internet advertising campaigns, to explore some options.

After meeting with Rose, Sami Landon, regional sales coordinator, has suggested that Bohlander use  a targeted marketing strategy by placing banner ads on a few gardening websites. Bohlander would pay  for the service based primarily on the number of ad impressions (the number of times the ads are shown).  Using past campaigns as a guide, Sami has prepared the following quarterly estimate for Bohlander.

Banner ad development (6 banners per quarter) . . . . . . . . . . . . . . . . . . . . . . \$7,200

Banner ad placement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  \$1.50 per thousand impressions

Estimated ad impressions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000

Banner ad click-throughs \$0.60 per click-through

From past experience, Kimland Media estimates that 1% of all viewers will “click through” the banner  ad to Bohlander’s website. Of those viewers who click through, Kimland estimates that 20% will actually make a purchase.

Required

a. What is the expected total cost per quarter of Bohlander’s Internet advertising campaign?

b. Given Sami’s cost estimates, what is Bohlander’s expected cost of acquiring a new customer  through the campaign?

c. Using the information you just calculated, what is the estimated cost to get one more person to  click through and make a purchase?