Module 10-1.pdf Book 1.pdf

Module 3 – Fixed and Variable Costs – Answers to Assignments
1. Whether costs are fixed, variable or step costs -
Fixed costs are those costs that remain constant up to a level of activity and timeframe and are not affected based on increase or decrease in units. Variable Costs are those cost those are depending on level of activity. E.g. if the units increase, cost also increases and vice versa. Step costs are those costs that remain constant up to a level and then start increasing based on increase in level of activity.
(a) Costs of Occupancy – Fixed Costs
(b) Costs of Management – Fixed Costs
(c) Costs of part-time employee salaries based on service volume – Variable Costs
(d) Costs of vaccine consumed – Variable Costs
2. (a) Fixed costs include Facilities & Equipment costs which $ 5,000 for 10 weeks. Variable costs include lunch & snacks cost that is $ 15 per child per week. Step costs include the salaries of counselors which is $ 2,000 for 5 counselors per week (that is $ 400 for 1 counselor per week).
(b) Cost of running the program for 50 children –
Fixed Cost (FC) = $ 5,000
Variable Cost (VC) = 50 children x $ 15 per child per week x 10 weeks = $ 7,500
Step Cost (SC) = $ 2000 (for 5 counselors per week) x 10 weeks = $ 20,000
Therefore, the total cost of program for 50 children = FC + VC + SC = $ 5,000 + $ 7,500 + $ 20,000 = $ 32,500.
(c) Cost of running the program for 75 children –
Fixed Cost (FC) = $ 5,000
Variable Cost (VC) = 75 children x $ 15 per child per week x 10 weeks = $ 11,250
Step Cost (SC) = $ 400 (for 1 counselor per week) X 7 counselors x 10 weeks = $ 28,000
(Note – Each counselor can be held responsible for 11 children as per management. Hence, for 75 children, there will be needed 7 counselors. Department is paying $ 2,000 per week...