Question

Wave Runners is a boat rental business that has the following costs over the relevant range of 20,000 to 26,000 operating hours for its boats:

Required:

1. Complete the schedule of the company’s total and unit costs. (Round "Cost per unit" answers to 2 decimal places.)

	Operating Hours
	20,000	22,000	24,000	26,000
Total costs:
Variable costs	$98,000
Fixed costs	3,946,800
Total costs	$4,044,800	$0	$0	$0
Cost per unit:
Variable cost
Fixed cost
Total cost per hour	$0.00	$0.00	$0.00	$0.00

2. Assume that Wave Runners rents it boats for $184 per hour and had 23,000 hours of rentals last year. Prepare a contribution format income statement for the year.

Answer 1

1.

	20,000	22,000	24,000	26,000
Total costs:
..Variable costs	$98,000	$107,800	$117,600	$127,400
..Fixed costs	$3,946,800	$3,946,800	$3,946,800	$3,946,800
Total costs	$4,044,800	$4,054,600	$4,064,400	$4,074,200
Cost per unit:
..Variable cost	$4.90	$4.90	$4.90	$4.90
..Fixed cost	$197.34	$179.40	$164.45	$151.80
Total cost per hour	$202.24	$184.30	$169.35	$156.70

Working Notes:

Variable cost per hour = $98,000 / 20,000

= $4.90

Variable cost = Variable cost per hour * Hours

Fixed cost per hour = Fixed costs / Hours

Total cost per hour = Total costs / Hours

2.

Sales Revenue (23,000 * $184)	$4,232,000
Less: Variable costs (23,000 * $4.90)	$112,700
Contribution margin	$4,119,300
Less: Fixed costs	$3,946,800
Net Operating income	$172,500