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. 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 costs in December, when 10,350 cars are expected to be washed. She tried two different methods to estimate December costs, account analysis and high-low, with number of cars washed as the independent variable for both methods.

To estimate the cost function parameters using account analysis, she analyzed actual costs in June, when 8,200 cars were washed. Her analysis revealed the following total fixed costs and total variable costs for each cost item:

Total Cost

Variable Cost

$1,640

$1,640

$3,280

$3,280

$25,800

$22,960

$8,960

$6,560

$3,500

$0

To estimate the cost function parameters using high-low, she used the following total cost and activity data from July and August:

July

August

$5,220

$6,600

$4,350

$5,500

$22,010

$27,300

$10,800

$13,100

$4,700

$4,700

$47,080

$57,200

8,700

11,000

REQUIRED [ROUND PER-UNIT COSTS TO TWO DECIMAL PLACES AND TOTAL COSTS TO THE NEAREST DOLLAR.]

Part A (6 tries; 5 points)
1. Using account analysis, what is the accountant's estimate of total fixed costs for December?    

2. Using account analysis, what is the accountant's estimate of variable costs per unit for December?   

Part B (6 tries; 5 points)
1. Using the high-low method, what is the accountant's estimate of total fixed costs for December?    

2. Using the high-low method, what is the accountant's estimate of total variable costs for December?   

Cost Item

Total Cost

Variable Cost

  Soap, cloths, and supplies

$1,640

$1,640

  Water

$3,280

$3,280

  Car wash labor

$25,800

$22,960

  Power for conveyor

$8,960

$6,560

  Supervisor and cashier

$3,500

$0

Explanation / Answer

Part A:

1.

2.

Working:

Part B:

1.

Fixed cost is $ 8,800

2.

Working:

Fixed cost = $    8,740

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