Zero Time Oil Change has been in business for 6 months. The company pays $0.50 p

Question

Zero Time Oil Change has been in business for 6 months. The company pays $0.50 per quarter for the oil it uses in servicing cars. Each job requires an average of 4 quarts of oil. The company estimates that in the next three months, it will service 240, 288, and 360 cars.
1. Compute the cost of oil for each of the three months and the total cost for all three months.
2. Complete the following sentences by choosing the words that best describe the cost behavior at Zero Time Oil Change:
a) Cost per unit (increased, decreased, remained, constant)
b) Total available cost per month (increased, decreased) as the quantity of oil used (increased, decreased)

Explanation / Answer

1. Cost of oil for each month: Cost of oil for the 1st month = 240 x 4 quarts x $0.50                                            = 960 x 0.50 Cost of oil for the 1st month = $480 Cost of oil for the 2nd month = 288 x 4 x 0.50 Cost of oil for the 2nd month = $576 Cost of oil for the 3rd month = 360 x 4 x 0.50 Cost of oil for the 3rd month = $720 Cost of oil for the total three monthe = $480 + $576 + $720 Cost of oil for the total three monthe = $1,776 2. a) Cost per unit = $2 in all of the cases. so the cost per unit is remained constant. b) Total available cost per month increased as the quantity of oil usedincreased. Cost of oil for the 1st month = 240 x 4 quarts x $0.50                                            = 960 x 0.50 Cost of oil for the 1st month = $480 Cost of oil for the 2nd month = 288 x 4 x 0.50 Cost of oil for the 2nd month = $576 Cost of oil for the 3rd month = 360 x 4 x 0.50 Cost of oil for the 3rd month = $720 Cost of oil for the total three monthe = $480 + $576 + $720 Cost of oil for the total three monthe = $1,776 2. a) Cost per unit = $2 in all of the cases. so the cost per unit is remained constant. b) Total available cost per month increased as the quantity of oil usedincreased.

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