Author Question: The owner of a business invested 5,000 in the business. What are the effects on the fundamental ... (Read 153 times)

Redwolflake15 · **on:** Jul 6, 2018

The owner of a business invested 5,000 in the business. What are the effects on the fundamental accounting equation?
a. Assets increase 5,000; liabilities, no effect; owner's equity increases 5,000
b. Assets increase 5,000; liabilities decrease 5,000; owner's equity increases 5,000
c. Assets increase 5,000; liabilities increase 5,000; owner's equity, no effect
d. Assets increase 5,000; liabilities, no effect; owner's equity decreases 5,000
e. Assets decrease 5,000; liabilities, no effect; owner's equity increases 5,000

Question 2

CVP, target operating income, service firm.

KinderKids provides daycare for children Mondays through Fridays.

Its monthly variable costs per child are as follows:

Lunch and snacks 100
Educational supplies 30
Other supplies (paper products, toiletries, etc.) 20
Total 150

Monthly fixed costs consist of the following:
Rent 1,500
Utilities 150
Insurance 200
Salaries 1,700
Miscellaneous 450
Total 4,000

KinderKids charges each parent 400 per child per month.

Required:
1. Calculate the breakeven point.
2. KinderKids' target operating income is 5,000 per month. Compute the number of children who must be enrolled to achieve the target operating income.
3. KinderKids lost its lease and had to move to another building. Monthly rent for the new building is 2,200. At the suggestion of parents, KinderKids plans to take children on field trips. Monthly costs of the field trips are 1,100. By how much should KinderKids increase fees per child to meet the target operating income of 5,000 per month, assuming the same number of children as in requirement 2?

duke02 · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

A

Answer to Question 2

1. Revenue per child 400
Variable costs per child 150
Contribution margin per child 250

Breakeven quantity =

= = 16 children

2. Target quantity =

= = 36 children

3. Increase in rent (2,200 1,500) 700
Field trips 1,100
Total increase in fixed costs 1,800
Divide by the number of children enrolled 36
Increase in fee per child 50

Therefore, the fee per child will increase from 400 to 450.

Alternatively,

New contribution margin per child = = 300

New fee per child = Variable costs per child + New contribution margin per child
= 150 + 300 = 450