How would you support denny''s view

Assignment Help Financial Accounting

Reference no: EM1311398

Redrafting contribution Margin statements.

Austin's Shooters, Inc. operates a paintball course where customers can come to play paintball games and stage organized matches with their friends. Their accountant, Denny Dinsdale, has produced an income statement (presented below) depicting their first year's operating data in the contribution margin format. The news is not good, given the loss of $30,000. However, Denny explains that this is the reason that the presentation is in this format. That is, Austin Douglas, the owner and manager of Austin's Shooters, Inc. can use the statement to determine what will happen next year given changes in volume.

Income Statement For the Year Ended December 31, 2004
Revenue:
Admission fees (1,600 shooters)	$80,000
Supplies and Concessions	$24,000
Total Revenue ($65 per unit)	$104,000
Variable Costs:
Cost of supplies & Concessions Sold	$14,000
Electricity (purchased per KWH)	$30,000
Wages of Games Coordinators (DL)	$40,000
Liability Insurance (based on # of customers)	$10,000
Total Variable Costs	$94,000
Contribution Margin	$10,000
Fixed Costs:
Depreciation - Bldg & Fixtures	$12,000
Advertising	$3,000
Heat and Light for Bldg.	$5,000
Property Taxes	$20,000
Total Fixed Costs	$40,000
Operating Income	$<30,000>

After careful review, Austin tells Denny that the classifications are not all correct. Austin enumerates three issues as follows:

1. Electricity cost is only for lighting a rather large area of land for play at night and is always on after sunset regardless of how many shooters are on site.
2. Although the wages of games coordinators are hourly, they are required to be present during all working hours to help ensure the safety of the shooters. Number of workers is adequate for up to 4,000 customers annually.
3. Since the liability insurance amount is based on number of shooters it does vary with volume, but it only increases for increments of every additional 5,000 shooters. Volume is expected to increase to 2,500 shooters next year, but 5,000 shooters clearly exceed the relevant range of expected operations for the foreseeable future.

Denny has assured Austin that the information is accurate and that the expenses are properly classified.

After entertaining Austin's arguments, Denny claims that he was taught in managerial accounting that direct labor (DL) and electricity are always variable costs. This is because workers are paid hourly and electricity is purchased as used per month (i.e., per KWH). How would you support Denny's view? How would you support Austin's view?

Reference no: EM1311398

Questions Cloud

Dissertation writing - criminology and law enforcement. : Dissertation writing - Criminology and law enforcement. "When you are the sheriff of Nowhere, you encounter strange crimes"

Computation of current share price : Computation of current share price and If the required rate on this stock is 10% what is the current share price

Absolute advantage and comparative advantage : Discuss how absolute advantage and comparative advantage differ? Kyle can read 20 pages of the economics in an hour. He can also read 50 pages of history in an hour. He spends 5 hours pre day studying. Draw Kyle's production possibilities fron..

Gdp inequality between countries : Using the dataset, produce a graph of per capita GDP for Argentina, China, and Canada from 1965 to 1995. Is inequality between these countries increasing?

How would you support denny''s view : How would you support Denny's view? How would you support Austin's view?

Find the distance point of the blade has traveled in 3 sec : Find the distance point P on the tip of the blade has traveled in 3 sec. Also, find the magnitude of the acceleration of point P when t = 3 sec.

Scatter plots comparing gdp growth : Make for more scatter plots comparing GDP growth 1970-2000 to corruption, political rights, rule of law, and socio-political instability

Canadian opportunity cost and production possibilities : What is opportunity cost of producing a car in Canada? What is the opportunity cost of producing the tonne of wheat in Canada? Describe the relationship between the opportunity costs of two goods.

Short description on mental fitness,collaborative learning : Write short description about the Mental fitness, collaborative learning, lifelong learning and self-directed learning.

User Account

All Pages