Problem
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 December, when 8,650 cars are expected to be washed. She uses two different methods to estimate total December 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 11,700 cars were washed. The following are February total costs and her fixed cost estimates:
|
Cost Item
|
Total Cost
|
Fixed Portion
|
|
Soap, cloths, and supplies
|
$2,340
|
$0
|
|
Water
|
$3,510
|
$0
|
|
Car wash labor
|
$31,880
|
$2,630
|
|
Power for conveyor
|
$11,420
|
$2,060
|
|
Supervisor and cashier
|
$3,900
|
$3,900
|
For the high-low method, she developed cost function parameter estimates by using the actual costs in July and August, when 8,600 and 11,200 cars were washed, respectively. The following are total costs for these two months:
|
Cost Item
|
July
|
August
|
|
Soap, cloths, and supplies
|
$5,160
|
$6,720
|
|
Water
|
$1,720
|
$2,240
|
|
Car wash labor
|
$24,560
|
$31,320
|
|
Power for conveyor
|
$10,340
|
$12,680
|
|
Supervisor and cashier
|
$4,850
|
$4,850
|
|
Total
|
$46,630
|
$57,810
|
REQUIRED
Part A
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
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?