Question

6. Which income statement format (traditional useful to managers in estimating how net operating income will change in responses to changes in unit sales? Why? PROBLEM 1-20 Variable and Fixed Costs; Subtleties of Direct and Indirect Costs L01-1, LO1-4 Madison Seniors Care Center is a nonprofit organization that provides a variety of health ser- vices to the elderly. The center is organized into a number of departments, one of which is the Meals-On-Wheels program that delivers hot meals to seniors in their homes on a daily basis. Below are listed a number of costs of the center and the Meals-On-Wheels program. example The cost of groceries used in meal preparation. a. The cost of leasing the Meals-On-Wheels van. b. The cost of incidental supplies such as salt, pepper, napkins, and so on. The cost of gasoline consumed by the Meals-On-Wheels van. C. d. The rent on the facility that houses Madison Seniors Care Center, including the Meals-On-Wheels program. The salary of the part-time manager of the Meals-On-Wheels program. f. Depreciation on the kitchen equipment used in the Meals-On-Wheels program. e. The hourly wages of the caregiver who drives the van and delivers the meals. g. h. The costs of complying with health safety regulations in the kitchen. i. The costs of mailing letters soliciting donations to the Meals-On-Wheels program. Required: For each cost listed above, indicate whether it is a direct or indirect cost of the Meals-On-Wheels program, whether it is a direct or indirect cost of particular seniors served by the program, and whether it is variable or fixed with respect to the number of seniors served. Use the form below for your answer. Variable or Fixed Direct or Indirect with Respect to the Cost of Particular Seniors Served by the Meals-on- Number of Seniors Direct or Indirect Served by the Meals- on-Wheels Program Cost of the Meals- Wheels Program on-Wheels Program Variable Fixed Direct Indirect Indirect Direct Description Item The cost of Example groceries used in meal X. preparation... ROBLEM 1-21 Traditional and Contribution Format Income Statements LO1-6 arwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $2,45 r unit and then sells them to retail customers for an average price of $3,125 each. The company ling and administrative costs for a typical month are presented below: Cost Formula Costs Selling:

Answer 1

Solution

Madison Seniors Care Center

Cost Categorization –

Madison Seniors Care Center
Item	Description	Direct or indirect cost of the Meals-on-Wheels Program		Direct or Indirect of Particular Seniors Served by the Meals-on-Wheels Program		Variable or Fixed with Respect to the number of seniors served by the Meals-on-Wheels Program
		Direct	Indirect	Direct	Indirect	Variable	Fixed
a	The cost of groceries used in meal preparation	X		X		X
b	The cost of leasing the meals-on-wheels van	X			X		X
c	The cost of gasoline consumed by the Meals-on-Wheels van	X			X	X
d	The rent on the facility that houses Madison Seniors Care Center, including the Meals-on-Wheels Program		X	X			X
e	The salary of the part-time manager of the Meals-on-Wheels Program	X			X		X
f	Depreciation on the kitchen equipment used on the Meals-on-Wheels Program	X			X		X
g	The hourly wages of the caregiver who drives the van and delivers the meals	X		X		X
h	The costs of complying with health safety regulations in the kitchen	X		X			X
i	The costs of making letters soliciting donations to the Meals-on-Wheels Program	X		X			X