Question

1. Supply costs at Coulthard Corporation's chain of gyms are listed below: Client-Visits Supply Cost March...

1. Supply costs at Coulthard Corporation's chain of gyms are listed below:

Client-Visits Supply Cost
March 11,667 $ 28,349
April 11,463 $ 28,298
May 11,995 $ 28,431
June 14,000 $ 28,932
July 11,727 $ 28,364
August 11,213 $ 28,235
September 12,007 $ 28,434
October 11,698 $ 28,357
November 11,846 $ 28,394

Management believes that supply cost is a mixed cost that depends on client-visits. Use the high-low method to estimate the variable and fixed components of this cost. Compute the variable component first, rounding off to the nearest whole cent. Then compute the fixed component, rounding off to the nearest whole dollar. Those estimates are closest to: (Round your intermediate calculations to 2 decimal places.)

2. Serfass Corporation's contribution format income statement for July appears below:

Sales $ 390,000
Variable expenses 175,500
Contribution margin 214,500
Fixed expenses 77,220
Net operating income $ 137,280

The degree of operating leverage is closest to:

Homework Answers

Answer #1

Answer to question -1:

Calculation of the variable and fixed components of cost using the high-low method :

Variable cost per unit = (Supply cost for higher client visits - Supply cost for the lower client visit) / (No. of Highest client visit - No. of lowest client visit)

= ($28,932 - $28,235) / (14,000 - 11,213)

= $697 / 2,787

= $0.25 per client visit

Fixed Cost = $28,932 - (14,000 x $0.25 per client visit)

= $25,432

Accordingly, the variable & fixed cost component are closest to $0.25 per client visit & $25,432 respectively.

Answer to question -2:

Calculation of degree of operating leverage of Serfass Corporations:

Degree of operating leverage = Contribution / Net operating income

= $214,500 / $137,280

= 1.5625

Accordingly, the degree of operating leverage is closest to 1.5625.

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