Question

Problem 2-20B Context-sensitive nature of cost behavior classifications

Sean Franklin sells a newly developed camera, Panorama Vision. He purchases the cameras from the manufacturer for $150 each and rents a store in a shopping mall for $6,000 per month.

Required

a. Determine the average cost of sales per unit if Mr. Franklin sells 100, 200, 300, 400, or 500 units of Panorama Vision per month. Use the following chart to organize your answer: Sales Volume in Units (a) 100 200 300 400 500 Total cost of cameras (a × $150) $15,000 Total cost of store rental    6,000 Total cost of sales (b) $21,000 Average cost per unit (b ÷ a) $210.00

b. If Mr. Franklin wants to make a gross profit of $30 on each camera he sells, what price should he charge at sales volumes of 100, 200, 300, 400, or 500 units?

c. Record the total cost of store rental if Mr. Franklin opens a camera store at one, two, three, four, or five shopping malls. Record your answers in the following chart. Is the cost of store rental fixed or variable relative to the number of stores opened? Shopping Malls 1 2 3 4 5 Total cost of store rental $6,000

d. Mr. Franklin provides decorative ornaments to customers who purchase cameras. Some customers take the ornaments, others do not, and some take more than one. The number of ornaments varies in relation to the number of cameras sold, but the relationship is not proportional. Assume that, on average, Mr. Franklin gives away $150 worth of ornaments for every 100 cameras sold. What is the additional cost per camera sold? Is the cost fixed or variable?

Answer 1