| Course | ACC 543 Managerial Accounting & Legal Aspects of Business (ACC/543) |
|---|---|
| Week | 2 |
| Paper type | Cost analysis for decisions paper |
| Length | about 1,167 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | MS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 543 Week 2
Pricing a Charter, Keeping a Commuter Route and Finding Break-Even: Cost Behavior, Contribution Margin and Relevant Cost Analysis at a Composite Regional Bus Company
[Student Name]
University of Phoenix
ACC/543: Managerial Accounting & Legal Aspects of Business
Week 2 Assignment
[Instructor Name]
[Date]
The bus company, its routes and all figures are composites written for a model paper; methods and research findings come from the sources listed.
A composite bus company operates 64 motorcoaches from two garages. It runs three commuter routes under contracts with county transit agencies and sells charters to schools, sports teams, churches and tour groups. Last quarter the owner faced three decisions at once: how to price a large charter for a university's athletic conference, whether the charter business was covering its costs and whether to give up an unprofitable commuter route when its contract came up for renewal. Every one of these decisions depended on knowing which costs would change, and the company's cost report could not answer that question. This paper builds the cost analysis.
Classifying the Costs
The company's costs fall into clear groups. Fuel, tires and oil vary with miles driven, at about $0.92 a mile. Driver wages and benefits vary with driver hours, at about $38 an hour. Insurance, licensing, garage rent, dispatch staff and administration are fixed within the current fleet size, about $3.1 million a year. Coach depreciation is fixed by time, about $1.9 million a year, though heavy use shortens coach life. Maintenance, which includes routine service and repairs, is mixed: part is fixed, such as mechanics' base salaries, and part rises with miles.
Separating Maintenance Cost
Monthly maintenance cost ranged from $142,000 in February, with 280,000 miles, to $198,000 in July, with 420,000 miles. The high-low method divides the change in cost by the change in miles, $56,000 over 140,000 miles, giving a variable rate of $0.40 a mile. Subtracting $0.40 times 420,000 miles from $198,000 leaves fixed maintenance of $30,000 a month.
Because the high-low method rests on just two data points, an odd month can distort it. A regression of all 24 months of maintenance cost on miles gives a variable rate of $0.36 a mile and a fixed cost of about $38,000 a month, with a strong fit. The accountant uses the regression figures because they reflect all the data (Garrison et al., 2021).
Contribution Margin per Charter Mile
Charters average 180 miles and 7.5 driver hours per trip and sell for an average of $1,950. Variable cost per trip is fuel and tires of $166, maintenance of $65 at the regression rate and driver cost of $285, a total of $516. Contribution margin per trip is $1,434, or about $7.97 a mile.
Is the Charter Business Covering Its Costs?
Fixed costs attributable to the charter business, including a charter sales manager, marketing and the share of coaches kept for charters, total about $1.6 million a year. Break-even is $1.6 million divided by $1,434, or about 1,116 trips a year. Last year, helped by a strong school sports season, the company ran 1,480 charter trips, about 33% above break-even, producing contribution beyond those fixed costs of about $520,000. The margin of safety is about 25% of current volume, which is healthy for a seasonal business.
Pricing the Conference Charter
The athletic conference wants the company to carry teams to tournaments over three weekends in March: 60 trips averaging 240 miles and 9 driver hours, with drivers staying overnight. The conference proposes $1,900 a trip. The company's standard pricing, based on average full cost per mile including fixed costs, would quote $2,600.
Relevant costs are those that change with the decision. Variable cost per trip is fuel and tires of about $221, maintenance of about $86 and driver pay of $342, plus $180 for driver lodging and meals, a total of about $829. Fixed costs will not change, since the coaches and staff exist either way. March weekends are busy, however, and the company expects the charters to displace about 12 regular trips with a contribution of about $1,434 each, or $17,200. That is an opportunity cost.
At $1,900, the 60 trips produce revenue of $114,000, variable costs of $49,700 and an opportunity cost of $17,200, adding about $47,100 to profit. The company should accept, and could consider a slightly higher price if the conference values reliability. A price below about $1,115 a trip, the incremental cost including the opportunity cost spread over 60 trips, would reduce profit.
The Unprofitable Route
Route 3, a peak-hour commuter service, earns contract revenue of $640,000 a year. Its variable costs for fuel, maintenance and drivers are $410,000. The cost report also assigns $290,000 of allocated fixed overhead, including garage rent, dispatch and administration, and $110,000 of depreciation on the four coaches it uses, showing a loss of $170,000.
The relevant question is which costs would disappear if the route ended. Variable costs would. The four coaches could be sold for about $360,000, and their insurance, $28,000 a year, would end. Allocated overhead would not change. Revenue of $640,000 less avoidable costs of $438,000 leaves $202,000 a year that the route contributes toward fixed costs. Dropping it would reduce company profit by about that amount, partly offset by the one-time proceeds from selling the coaches. The company should renew the contract, while negotiating a price increase to reflect higher driver wages. If the county refuses any increase, the route still adds more than it costs, so the company would renew at the current price rather than lose the $202,000.
When Drivers Are the Constraint
In peak months the company's binding constraint is not coaches but qualified drivers. When a resource is scarce, the relevant measure is contribution per unit of that resource rather than per trip (Datar & Rajan, 2021). A typical charter contributes $1,434 over 7.5 driver hours, about $191 an hour, while the conference trips contribute about $1,071 each after variable costs over 9 hours, about $119 an hour, less the displaced contribution. On driver hours alone, regular charters are more profitable, which is why the analysis counted the displaced trips. If the company can hire two part-time drivers for March, the displacement falls and the conference contract becomes more attractive; the accountant estimated that recruiting and training them would cost about $6,000, well below the $17,200 of displaced contribution.
Why Cost Reports Mislead
Full-cost reports serve financial reporting and pricing over the long run, but they mix fixed and variable costs in ways that mislead short-term decisions. Cooper and Kaplan (1988) argued that traditional cost systems often distort product and customer costs, leading managers to drop profitable lines or underprice others. The bus company's cost report made a contributing route look like a loser and made a profitable charter look underpriced.
Qualitative Factors
The route contract also supports the company's relationship with the county, which issues larger contracts. The conference charters bring visibility with universities. Both qualitative factors support the quantitative conclusions.
Conclusion
Separating costs by behavior allowed the company to find the charter business's break-even, price a large charter from incremental and opportunity costs and see that a route showing an accounting loss contributes about $202,000 a year. The decisions came from asking which costs would change, not from the averages in the cost report.
References
Cooper, R., & Kaplan, R. S. (1988). Measure costs right: Make the right decisions. Harvard Business Review, 66(5), 96-103.
Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.
Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (17th ed.). McGraw Hill.
What the ACC 543 Week 2 instructions ask
The ACC 543 Week 2 task commonly asks graduate students to apply cost behavior and cost-volume-profit analysis to management decisions. Typical requirements include classifying costs as fixed, variable or mixed, separating mixed costs with the high-low method or regression, computing contribution margin, break-even and target profit volumes, and working through decisions like a one-time order at a reduced price, outsourcing, closing a line or allocating scarce capacity with relevant costs, avoidable costs and opportunity costs. Many prompts present a company with data and several pending decisions. Show every calculation, explain which costs are relevant and why and back the reasoning with managerial accounting sources and research in APA form.
How this ACC 543 Week 2 example is built
A bus company makes cost behavior concrete: fuel and tires vary with miles, driver pay varies with hours, insurance and garage costs are fixed and maintenance is mixed. The paper first builds a cost model, separating the mixed cost two ways and noting why the answers differ. Contribution margin per mile then supports a break-even analysis for the charter business. The special charter is priced from incremental costs and the lost income from a charter it would displace. The route decision separates avoidable from unavoidable costs, showing that a route with an accounting loss still covers its avoidable costs. A closing section discusses how cost systems can mislead decision makers and why capacity limits change the answer.
ACC 543 Week 2 grading rubric: where the points go
Graduate grading for this week tends to reward accurate cost behavior analysis, correct contribution margin and break-even calculations and disciplined use of relevant costs. Faculty check that mixed costs are separated with a stated method, ideally confirmed with a second one, and the limits of that method are acknowledged, that break-even uses contribution margin and fixed costs correctly, that special order pricing uses incremental and opportunity costs rather than full cost and that segment decisions exclude unavoidable allocated costs. Clear presentation of each decision with a recommendation, qualitative factors, attention to capacity constraints and support from sources completes the evaluation.
ACC 543 Week 2 help: mistakes to avoid
A common ACC 543 Week 2 mistake is using average cost per mile, which includes fixed costs, to price an extra charter. Only costs that change with the charter are relevant, plus any profit given up. Another is dropping a segment because it shows a loss after allocated overhead, even though the overhead will remain. Separate avoidable from unavoidable costs. Students also rely on the high-low method without noting that it uses only two observations, either of which may be unusual. Compare it with regression where data allow. Round consistently, and show per-unit and total figures. For each decision, state a recommendation and what would reverse it. Finally, mention qualitative factors, such as contract commitments.
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ACC 543 Week 2 questions, answered
What does ACC/543 Week 2 usually cover?
It usually covers cost behavior and cost analysis for decisions, including separating mixed costs, contribution margin, break-even analysis and relevant cost decisions such as special orders and dropping segments.
Where can I find a free ACC 543 Week 2 sample paper?
This page shows the bus company's cost model, break-even analysis, charter pricing and route decision, annotated in the margin and free. Send your decision case and a first graduate draft costs you nothing.
What is the high-low method?
A way to separate a mixed cost into fixed and variable parts using the highest and lowest activity levels; it is simple but relies on only two observations.
What is contribution margin?
Revenue minus variable costs, the amount available to cover fixed costs and provide profit; per unit, it shows how much each additional unit adds to profit.
Should a company drop a segment that shows a loss?
Not necessarily. If the segment's revenue exceeds its avoidable costs, dropping it would reduce total profit, because allocated fixed costs would remain.
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