Context-sensitive nature of cost behavior classifications
Susan Hicks operates a sales booth in computer software trade shows, selling an accounting software package, Dollar System. She purchases the package from a software manufacturer for $175 each. Booth space at the convention hall costs $10,000 per show.
Required
a. Sales at past trade shows have ranged between 200 and 400 software packages per show. Determine the average cost of sales per unit if Ms. Hicks sells 200, 250, 300, 350, or 400 units of Dollar System at a trade show. Use the following chart to organize your answer. Is the cost of booth space fixed or variable?
| Sales Volume in Units (a) | ||||
200 | 250 | 300 | 350 | 400 | |
Total cost of software (a × $175) | $35,000 |
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Total cost of booth rental | 10,000 |
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Total cost of sales (b) | $45,000 |
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Average cost per unit (b 4 a) | $ 225 |
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b. If Ms. Hicks wants to earn a $50 profit on each package of software she sells at a trade show, what price must she charge at sales volumes of 200, 250, 300, 350, or 400 units?
c. Record the total cost of booth space if Ms. Hicks attends one, two, three, four, or five trade shows. Record your answers in the following chart. Is the cost of booth space fixed or variable relative to the number of shows attended?
| Number of Trade Shows Attended | ||||
1 | 2 | 3 | 4 | 5 | |
Total cost of booth rental | $10,000 |
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d. Ms. Hicks provides decorative shopping bags to customers who purchase software packages. Some customers take the bags; others do not. Some customers stuff more than one software package into a single bag. The number of bags varies in relation to the number of units sold, but the relationship is not proportional. Assume that Ms. Hicks uses $30 of bags for every 50 software packages sold. What is the additional cost per unit sold? Is the cost fixed or variable?
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