Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, co
ID: 2418422 • Letter: L
Question
Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, continuously moving conveyor belt. A car is washed as the conveyor belt carries it from the start station to the finish station. After the car moves off the conveyor belt, workers dry it and clean and vacuum the inside. Workers are managed by a single supervisor.
Lorenzo's accountant wants to estimate total costs in October, when 11,050 cars are expected to be washed. She uses two different methods to estimate total October costs, account analysis and high-low, with number of cars washed as the independent variable for both methods.
For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in February, when 10,900 cars were washed. The following are February total costs and her fixed cost estimates:
Total Cost
Fixed Portion
$6,540
$0
$2,180
$0
$30,370
$2,030
$12,430
$2,620
$3,800
$3,800
For the high-low method, she developed cost function parameter estimates by using the actual costs in April and May, when 8,100 and 11,100 cars were washed, respectively. The following are total costs for these two months:
April
May
$3,240
$4,440
$4,050
$5,550
$20,730
$27,630
$11,210
$14,510
$3,000
$3,000
REQUIRED [ROUND PER-UNIT COSTS TO TWO DECIMAL PLACES AND TOTAL COSTS TO THE NEAREST DOLLAR.]
part A
1. Using account analysis, what is the accountant's estimate of total fixed costs for October?
2. Using account analysis, what is the accountant's estimate of variable costs per unit for October?
Part B
1. Using the high-low method, what is the accountant's estimate of total fixed costs for October?
2. Using the high-low method, what is the accountant's estimate of total variable costs for October?
Total Cost
Fixed Portion
Soap, cloths, and supplies$6,540
$0
Water$2,180
$0
Car wash labor$30,370
$2,030
Power for conveyor$12,430
$2,620
Supervisor and cashier$3,800
$3,800
Explanation / Answer
Part A
1. Using account analysis, what is the accountant's estimate of total fixed costs for October?
Total fixed costs for October = Car wash labor + Power for conveyor + Supervisor and cashier
Total fixed costs for October = 2030+2620+3800
Total fixed costs for October = 8450
2. Using account analysis, what is the accountant's estimate of variable costs per unit for October?
Total Cost in February = Soap, cloths, and supplies + Water + Car wash labor + Power for conveyor + Supervisor and cashier
Total Cost in February = 6540 + 2180 + 30370 + 12430 + 3800
Total Cost in February = 55320
Total Variable cost = Total Cost in February - Fixed Cost
Total Variable cost = 55320 - 8450
Total Variable cost = 46870
Variable costs per unit for October = Total Variable cost/Estimated total unit
Variable costs per unit for October = 46870/10900
Variable costs per unit for October = 4.30
Part B
Using high-low method
Variable costs per unit = (Total Cost in May - Total Cost in April)/(Total Unit in May - Total Unit in April)
Variable costs per unit = (55130-42230)/(11100-8100)
Variable costs per unit = $ 4.30
1. Using the high-low method, what is the accountant's estimate of total fixed costs for October?
Total fixed costs for October = Total Cost in April - Variable costs per unit *Unit in April
Total fixed costs for October = 42230 - 4.30*8100
Total fixed costs for October = 7400
2. Using the high-low method, what is the accountant's estimate of total variable costs for October?
Total variable costs for October = Variable costs per unit *Unit in Oct
Total variable costs for October = 4.30*11050
Total variable costs for October = 47515
Cost Item April May Soap, cloths, and supplies 3240 4440 Water 4050 5550 Car wash labor 20730 27630 Power for conveyor 11210 14510 Supervisor and cashier 3000 3000 Total Cost 42230 55130Related Questions
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