Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, co

Question

Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, continuously moving conveyor belt. Cars are washed as the conveyor belt carries the cars from the start station to the finish station. After the car moves off the conveyor belt, the car is dried manually. Workers then clean and vacuum the inside of the car. Lorenzo serviced 80,000 cars in 2016. Lorenzo reports Account Description Car wash labour Soap, cloth, and supplies Water Electric power to move conveyor belt Depreciation Salaries Cosis $260,000 $42,000 $38,000 $72,000 $64,000 $46,000 1. Classify each account as variable or fixed with respect to cash washed. Explain 2. Lorenzo expects to wash 90,000 cars in 2017. Use the cost classification developed in requirement 1 to estimate Lorenzo's total costs in 2017. Depreciation is computed on a straight-line basis.

Explanation / Answer

1.)

2.)

Classification Account Variable/Fixed Reason Car wash labour variable Labour is paid only when car is washed which means it increases or decreases based on car. Soap,cloth, supplies variable level of consumpton of Soap, cloth and supplies based on the number of car washed. Water variable Consumption of water increases if number of car increases or vice e versa. electric power variable More number of car washing increases consumption of electricity depreciation fixed It recurs in same amount per year irrespective of number of car being washed. salaries fixed Salaries are fixed cost as it doesn't get change with the level of production.

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