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 $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 d

Answer 1

Answer:

1 = $600 + $20 × X

2. = $2000

3 = $2,600

4 = $26 per class

5 = a = $3,600

b = $24

c =  the cost per unit has reduced from $26 to $24.

Explanation:

According to the scenario, computation of the given data are as follow:-

We assume no. of units = X

1.Total Labor Cost =Total Fixed Cost + (Variable Cost Per Unit × No. of Units)

= $600 + $20 × X

2. Last month 100 classes were taught.

Total Variable Cost = No. of Classes Taught × Variable Cost Per Class

= 100 × $20 = $2000

3. When 100 classes were taught, total labor cost is-

Total Labor Cost = Total Fixed Cost + (No. of Units × Variable Cost Per Units)

= $600 + 100 × $20

= $600 + $2,000

= $2,600

4. Per Classes Unit Cost of Labor =Total Labor Cost ÷ No. of Classes Taught

= $2,600 ÷ 100

= $26 per class

5. If the No. of taught classes increase by 50% then the no. of classes is offered = 100 + (100 × 50 ÷ 100) = 150

a). Total Labor Cost if the no. of classes taught are 150

Total Labor Cost = Total Fixed Cost + (No. of Units × Variable Cost Per Units)

= $600 + 150 × $20

= $600 + $3,000

= $3,600

b). Per Classes Unit Cost of Labor = Total Labor Cost ÷ No. of Classes Taught

= $3,600 ÷ 150

= $24

c). After the change in the level of the activity variable cost per unit and fixed cost per unit remain same. So if there is an increase in the taught classes then the cost per unit has reduced from $26 to $24.