Question

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

Answer 1

Ans:

In house members eat 20 meals x 32 weeks that is 640 meals per year x 60 = 38400 meals per year
32 Mondays there are 40 additional consuming meals = 32 x 40 = 1280 dinner per year
they also use other services like tv lounges, kitchen and so on

Factors to consider
Total expenditure
Usd 240000 including food USD 40000 per year
Usd 34800 variable
Total USD 274,800

60 in house members eat 20 meals per week and a year has 32 weeks. So Total In-house members meals
in a year 20 meals x 32 weeks x 60 in house members = 38400 meals consumed by in house members

60 in house members also use boarding and lodging services and of course recreation and other services

40 living somewhere else members dine every Monday. That is minimum dinner meals
of living somewhere else members is 40 members x 32 weeks = 1280 dinner meals consumed

40 living somewhere else members also use other services every Monday.
So other capability usage for living somewhere else members is again 40 members x 32 weeks = 1280 usages
of other capability.

Variable cost is 34800, which is for mostly living somewhere else members for capability usage

Food Cost is 40000 per year.
in house member meals as specified above 38400 meals
living somewhere else member meals as specified above 1280 dinner meals only Monday
presume that further 8 other meals in a week by 40 living somewhere else members
would mean 8 meals x 32 weeks x 40 members = 10240 meals

Total Meals in a year 38400 + 1280 + 10240 = 49920 meals
Per meal cost is 0.80 usd per meal per member

Variable cost is 34800, which is for mostly living somewhere else members for capability usage
using the same presumption of meal consumption by living somewhere else members,
they would be using the capability 1280 + 10240 = 11520 instances persons a year
Variable cost per usage is usd 3.02 per instance

Fixed cost other than food cost is 200000 for 60 in house members per year
which is for boarding lodging and use of all services

60 members x 32 weeks = 1920
per member per week would be 200000/1920 = 104.17 per member per week.

In house Members boarding lodging and capability usage charge 105 USD per member per week as

Discussed above

In house Members per meal charges 0.80 usd per meal. This can be also weekly 16 usd per member per week based on 20 meals per week.

Living somewhere else Members Capability usage charge USD 3 per instance as discussed above

Living somewhere else Members Meal charges USD 1 per meal (slightly higher than 0.80 USD as discussed above) since the figures are based on presumptions specified above.