Question

Neptune Rentals operates a boat rental service. Consider the following costs of the company over the relevant range of 5,000 to 8,000 hours of operating time for its boats:
Hours of Operating Time
5,000 6,000 7,000 8,000
Total costs:
Variable costs ............... $ 20,000 $ ? $ ? $ ?
Fixed costs ................... 168,000 ? ? ?
Total costs ....................... $188,000 $ ? $ ? $ ?
Cost per hour:
Variable cost ................. $ ? $ ? $ ? $ ?
Fixed cost ..................... ? ? ? ?
Total cost per hour ........... $ ? $ ? $ ? $ ?
Required:
Compute the missing amounts, assuming that cost behavior patterns remain unchanged within the relevant
range of 5,000 to 8,000 hours.

Answer 1

Answer and Explanation:

The computation of the missing amount is shown below:

                                      Operating hours

Particulars          5,000           6,000           7,000         8,000

Total cost:

Variable cost      $20,000      $24,000      $28,000    $32,000

                           ($20,000 × 6 ÷ 5)    ($20,000 × 7 ÷ 5)    ($20,000 × 8 ÷ 5)

Fixed cost          $168,000      $168,000      $168,000   $168,000

Total cost           $188,000      $192,000      $196,000    $200,000

Cost per hour:

Variable cost      $4                  $4                 $4                 $4

($20,000 ÷ 5,000) ($24,000 ÷ 6,000) ($28,000 ÷ 7,000)  ($32,000 ÷ 8,000)

Fixed cost           $33.60          $28              $24              $21

($168,000 ÷ 5,000) ($168,000 ÷ 6,000) ($168,000 ÷ 7,000)  ($168,000 ÷ 8,000)

Total cost per hour    $37.60   $32             $28             $25