This exam is on the subject of COST ACCOUNTING. These are written problems and ALL WORK MUST BE SHOWN FOR EACH PROBLEM!!!!!!! The material covered comes from the following text book; "COST ACCOUNTINGA...

Problem I – 15 Points
Aldo's T-shirt Shop only has three costs: T-shirt cost, rent cost on the shop, and utilities
cost.
Aldo's sells the T-shirt for $14.50 each. Management has prepared the following
estimated cost information for next month:
At 8,000 At 10,000
T-shirts T-shirts
T-shirt cost ........................ $48,000 $60,000
Rent cost ............................ $3,600 $3,600
Utilities cost ...................... $6,800 $8,300
Assume that all of the activity levels mentioned in this problem are within the relevant
range.
Required:
A. Calculate what Aldo's should expect for total variable cost if 9,000 T-shirts are sold
next month.
Solution
Total variable cost for T Shirt at 9000 units
= Variable cost per unit * 9000 units
= 9000*6
=$ 54000
Notes
Variable cost per unit at 8000 units = 48000/8000
=6 per unit
Variable cost per unit at 10,000 units = 60,000/10000
=6 per unit
Thus Variable cost at 9000 units
= 9000*6

=54000
B. Prepare Aldo's contribution approach income statement for a monthly sales volume
level of 10,000 T-shirts.
Solution
Aldo Company
Contribution Income Statement
(10,000 units)
Units 10,000 units
Sales Revenue(10000*14.50) 145000
Less: Variable cost(10000*6) 60000
Contribution 85000
Problem II – 15 Points
Lakeside Tours operates a large number of tours throughout the United States. A study
has indicated that some of the tours are not profitable, and consideration is being
given to dropping these tours in order to improve the company's overall operating
performance. One such tour is a two-day Battlefield of the Civil War bus tour. An
income statement from one of these tours is given below:
Ticket revenue
(100 seats × 45% occupancy × $80 ticket price) .. $3,600 100%
Less variable expenses ($24 per person) .................. 1,080 30%
Contribution margin ................................................. 2,520 70%
Less fixed tour expenses:
Tour promotion ..................................................... $620
Salary of bus driver ............................................... 400
Fee, tour guide ....................................................... 825
Fuel for bus ........................................................... 100
Depreciation of bus ............................................... 400
Liability insurance, bus ......................................... 250
Overnight parking fee, bus .................................... 50
Room and meals, bus driver and tour guide .......... 75
Bus maintenance and preparation ......................... 325
Total fixed tour expenses ......................................... 3,045
Net operating loss ..................................................... $ (525)
Dropping this tour would not affect the number of buses in the company's fleet or the
number of bus drivers on the company's payroll. Buses do not wear out through
use; rather, they eventually
become obsolete. Bus drivers are paid fixed annual salaries; tour guides are paid for each
tour conducted. The “Bus maintenance and preparation” cost above is an
allocation of the salaries of mechanics and other service personnel who are
responsible for keeping the company's fleet of buses in good operating condition.
There would be no change in the number of mechanics and other service
personnel as a result of dropping this tour. The liability insurance depends upon
the number of buses in the company's fleet and not upon how much they are used.
Required:
A. Prepare an analysis showing what the impact will be on company profits if this tour is
discontinued.
Solution
If the tour is discontinued, Company will lose the existing contribution margin and there...