Question

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 $30 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? If required, round your answer to the nearest cent.
	$ per class
c.	Why did the unit labor cost decrease?

Answer 1

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

Total labor cost

=

$ cost of the fitness trainers is $600 per month

+

30$ per class taught

2.	What was total variable labor cost last month?
	$30*100classes=3,000$

3.	What was total labor cost last month?
	$600+3000$=3,600$

4.	What was the unit cost of labor (per class) for last month?
	$36 per class i.e.3600$/100classes

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

a.	What would be the total labor cost?
	$600+(30$*150classes)=5,100$
b.	The unit labor cost? If required, round your answer to the nearest cent.
	$34 per class i.e.5,100$/150classes
c.	Why did the unit labor cost decrease? Because veriable cost per class30$ constant, But fixed cost 600$ charged to 150classes instaed of 100 classes, fixedcost per class before=600/100classes=6$, After=600/150classes=4$ so cost per class is reduced by 2$(36-34).