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Two Problems Dealing with Cost Behavior

Answer both of the following questions. Explain your answer briefly and clearly, showing any necessary calculations.

1. The County Historical Society and Museum is considering holding a picnic as a fundraiser. They plan to charge $15 per ticket. They can rent a facility at a state park for $300. The food would be catered by a local caterer at a cost of $4 per meal, plus $100 for setting up their equipment. A band would be hired to play for $200 plus 5% of the "gate" (gross ticket sales). The Society would like to net at least $3,000 from the event. How many tickets must be sold for them to achieve their goal?

2. Local Manufacturing Co. classifies manufacturing overhead costs into three categories. The amount of these costs for two recent months are given below...
a. Classify the behavior of each cost as fixed, variable, or mixed (assume no step functions), and express each in an equation of the form Y = a + bX, where Y is cost and X is activity in number of units.
b. Use your answer to (a) above to forecast the amount of overhead cost for September, when production is expected to total 6,200 units.


Solution Preview

#1 County Historical Society and Museum
$15 per ticket, however 5% of the gross sales are to be given to the band which gives it an effective net of $14.25. From this is to be deducted the cost of food per person @$4. Which gives us $10.25.

Fixed Costs include
Rent of the state park $300
Setting up ...