Question

1. Mixed Costs and Cost Formula

   Callie's Gym is a complete fitness center. Owner Callie Ducain employs various fitness trainers who are expected to staff the front desk and to teach fitness classes. While on the front desk, trainers answer the phone, handle walk-ins and show them around the gym, answer member questions about the weight machines, and do light cleaning (wiping down the equipment, vacuuming the floor). The trainers also teach fitness classes (e.g., pilates, spinning, body pump) according to their own interest and training level. The cost of the fitness trainers is $600 per month and $20 per class taught. Last month, 100 classes were taught.

   Required:

   1. Develop a cost equation for total cost of labor.

   Total labor cost

   =

   $

   +

   $ per class taught

   2.	What was total variable labor cost last month?
   	$

   3.	What was total labor cost last month?
   	$

   4.	What was the unit cost of labor (per class) for last month?
   	$ per class

   5.	What if Callie increased the number of classes offered by 50 percent?

   a.	What would be the total labor cost?
   	$
   b.	The unit labor cost?
   	$
   c.	Explain why the unit labor cost decreased.

Answer 1

Answer 1.

Variable Labor Cost per class taught = $20
Fixed Labor Costs = $600

Total Labor Cost = $600 + $20 per class taught

Answer 2.

Number of classes taught = 100

Variable Labor Cost = Variable Cost per class taught * Number of classes taught
Variable Labor Cost = $20 * 100
Variable Labor Cost = $2,000

Answer 3.

Total Labor Cost = Variable Labor Cost + Fixed Labor Costs
Total Labor Cost = $2,000 + $600
Total Labor Cost = $2,600

Answer 4.

Labor Cost per class taught = Total Labor Cost / Number of classes taught
Labor Cost per class taught = $2,600 / 100
Labor Cost per class taught = $26.00

Answer 5-a.

Number of classes taught = 100 + 100 * 50%
Number of classes taught = 150

Total Labor Cost = $600 + $20 * 150
Total Labor Cost = $3,600

Answer 5-b.

Labor Cost per class taught = Total Labor Cost / Number of classes taught
Labor Cost per class taught = $3,600 / 150
Labor Cost per class taught = $24.00

Answer 5-c.

Labor cost per class taught decreased as the fixed labor cost per class taught decreases as number of classes taught increases.