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For many years the Honey Lake Summer Camp had used the number of campers per week to estimate...

Question:

For many years the Honey Lake Summer Camp had used the number of campers per week to estimate weekly costs. The summer camp is open for ten weeks during the summer with a different number of campers each week. Costs from last year's summer camp is used to estimate costs for this year for pricing purposes. Camp counselors are plentiful and the job is fun, so they only hire as many as they need each week. The following costs occurred during a slow week last year and the costs of each cost category are expected to be the same this year:

Weekly Cost Supervisor's salary (hired weekly) $500
Cook's salary (hired weekly) $400
Camp counselor salaries (1 for each occupied cabin, each of which holds 10 campers) (5 counselors x $200/counselor) $1,000
Food (50 campers x $100/camper) $5,000
Supplies (50 campers x $20/camper) $1,000
Utilities (50 campers x $10/camper) $500
Insurance (50 campers x $20/camper) $1,000
Property tax ($10,000/10 weeks) $1,000
Weekly total $10,400
Average cost per camper: $10,400/50 campers $208/camper

The Honey Lake Summer Camp expects 65 campers during the second week of July.

a. Using the average cost per camper, what is the expected total cost of a 65 camper week?

b. What is the expected total cost of that week calculated using ABC?

c. The last week of August is always a very slow week, with an average of only 12 campers, paying $400 each. Using ABC, how much is their profit (loss) for that week?

d. Ignoring any marketing issues, how much would they save (lose) compared to staying open by canceling the last week of August?

Income Statement:

The income statement is prepared after deducting all operating expenses from the revenue for the concerned period. The allocation of operating expenses could be done under activity-based costing method or traditional method.

Answer and Explanation:

a. Using the average cost per camper, the expected total cost of a 65 camper week is $13,520 ($208 x 65)

b. The expected total cost of that week calculated using ABC is $13,050.

Compute the expected total cost of that week calculated using ABC as follows: -

Particulars Amount
Weekly Cost Supervisor's salary (hired weekly) $500
Cook's salary (hired weekly) $400
Camp counselor salaries (1 for each occupied cabin, each of which holds 10 campers) (7 counselors x $200/counselor) $1,400
Food (65 campers x $100/camper) $6,500
Supplies (65 campers x $20/camper) $1,300
Utilities (65 campers x $10/camper) $650
Insurance (65 campers x $20/camper) $1,300
Property tax ($10,000/10 weeks) $1,000
Weekly total $13,050

c. During the last week of August using ABC, company would earn $500 as profit.

Compute net profit as follows: -

Income Statement
Particulars Amount
Sales Value ($400 x 12) (A) $4,800
Less: Operating Costs
Weekly Cost Supervisor's salary (hired weekly) $500
Cook's salary (hired weekly) $400
Camp counselor salaries (1 for each occupied cabin, each of which holds 10 campers) (3 counselors x $200/counselor) $600
Food (12 campers x $100/camper) $1,200
Supplies (12 campers x $20/camper) $240
Utilities (12 campers x $10/camper) $120
Insurance (12 campers x $20/camper) $240
Property tax ($10,000/10 weeks) $1,000
Weekly total (B) $4,300
Net Profit (A-B) $500

d. By canceling the last week of August the company would lose $500 as profit.


Learn more about this topic:

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What Is an Income Statement? - Purpose, Components & Format

from Accounting 101: Financial Accounting

Chapter 2 / Lesson 2
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