Question

Phi Upsilon Nu, a student social organization, has two different locations under consideration for constructing a new chapter house. PhUN's president, a POM student, estimates that due to differing land costs, utility rates, etc., both fixed and variable costs would be different for each of the proposed sites, as follows: ANNUAL OPERATING COSTS LOCATION FIXED VARIABLE Alpha Ave. $5,000 $200 per person Beta Blvd. $8,000 $150 per person What would be total annual costs for the Alpha Ave. location with twenty persons living there

Answer 1

Answer:

Phi Upsilon Nu

The total annual costs for the Alpha Ave. location with twenty persons living there is:

= $9,000.

Explanation:

a) Data and Calculations:

ANNUAL OPERATING COSTS

LOCATION   FIXED        VARIABLE                Total Costs

Alpha Ave.  $5,000      $200 per person     $9,000 ($5,000 + $200 * 20)

Beta Blvd.   $8,000       $150 per person     $11,000 ($8,000 + $150 * 20)

b)The variable cost of each location varies according to the number of persons living there and the rate incurred per person.  The fixed cost does not vary, at least, with the relevant range for either location.  When the total variable costs are computed, these are added to the fixed cost to obtain the total costs.  Then there is a comparison of the two locations to determine the location with the least total costs.