Question

1. Single Charging Rates

   House Corporation Board (HCB) of Tri-Gamma Sorority is responsible for the operation of a two-story sorority house on the State University campus. HCB has set a normal capacity of 60 women. At any given point in time, there are 100 members of the chapter: 60 living in the house and 40 living elsewhere (e.g., in the freshman dorms on campus). HCB needs to set rates for the use of the house for the coming year. The following costs are budgeted: $240,000 fixed and $34,800 variable. The fixed costs are fairly insensitive to the number of women living in the house. Food is budgeted at $40,000 and is included in the fixed costs; food does not seem to vary greatly given the stated capacity. The variable expenses consist of telephone bills and some of the utilities. HCB is not responsible for chapter dues, party fees, pledging and initiation fees, and other social expenditures. Women living in the house eat 20 meals per week there and live in a two-person room. (All in-house members’ rooms, bathroom facilities, etc., are on the second floor.) All members eat Monday dinner at the house and have full use of house facilities (e.g., the two TV lounges, kitchens, access to milk and cereal at any time, study facilities, and so on).

   HCB has traditionally set two rates: one for in-house members and one for out-of-house members. There are 32 weeks in a school year.

   Required:

   Set charging rates for the in-house and out-of-house members. For interim computations, carry amounts out to the nearest cent. Round your final answers to the nearest dollar.

   	Charging rate
   In-house members	$ per year
   Out-of-house members	$ per year

   Feedback

   Single charging rate combines variable and fixed costs of the support department. Budgeted fixed and variable costs and budgeted usage are both factors in the necessary calculation.

Answer 1

	Charging rate
In-house members	$          3,893	per year
Out-of-house members	$          1,032	per year
In-house members
Use of second floor ($240,000 –$40,000)/2	$ 100,000.00
Use of first floor [($240,000 –$40,000)/2] x 0.6	$   60,000.00
Food* ($1.01)x (60 )x (20)x (32)	$   38,784.00
Variable expenses	$   34,800.00
Total	$ 233,584.00
Charging rate per in-house member per year: $233,509.68/60	$          3,893
*Cost per meal: $40,000/{[40 + (60 × 20)] × 32} = $1.01	1.01
Out-of-house members
Use of first floor [($240,000 –$40,000)/2] x 0.4	$   40,000.00
Food* ($1.01)x (40)x (32)	$     1,292.80
Total	$        41,293
Charging rate per out-of-house member per year: $41,293/40	$          1,032