This problem has two parts. In Part A, you are asked to do account analysis base

Question

This problem has two parts.  In Part A, you are asked to do account analysis based on cost and activity information that you are given for one particular month.  Account analysis is illustrated in the lecture on cost function parameter estimation and in study problem 3-36.

In Part B, you are asked to do the high-low method based on cost and activity information that you are given for two particular months.  The high-low method is illustrated in the same lecture on estimating cost function parameters and in study problems 3-47, 3-44, and Extra #3.

NOTE that the data that you must use to get the cost function parameters for Part A are completely different than the data you must use for Part B.  However, for both parts, you must make predictions for the same month.  Also, be sure to read each question very carefully.

Each part of the problem is worth five points and has two questions. There is no partial credit within a part, so to get the five points for a part, you must answer both questions correctly.  You get six tries per part (not per individual question).
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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 8,450 cars are expected to be washed. She uses 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 develop the cost functions, she collected the following cost and activity data for June, July, and August:

For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in June. Her analysis revealed the following fixed cost components for each cost item:

For the high-low method, she developed cost function parameter estimates using the July and August data.


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 total variable costs 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 variable costs per unit for December?   

June July August   Cost item     Soap, cloths, and supplies $2,140 $5,040 $6,780     Water $3,210 $5,040 $6,780     Car wash labor $32,710 $23,300 $30,550     Power for conveyor $14,190 $9,020 $11,340     Supervisor and cashier $3,500 $4,100 $4,100     Total $55,750 $46,500 $59,550   Cars washed 10,700 8,400 11,300

Explanation / Answer

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

$8670

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

$37,180

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

$8700

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

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