Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, co
ID: 2418746 • 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 10,500 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 June, when 9,600 cars were washed. The following are June total costs and her variable cost estimates:
Total Cost
Variable Portion
$5,760
$5,760
$4,800
$4,800
$26,910
$24,000
$10,360
$7,680
$3,000
$0
For the high-low method, she developed cost function parameter estimates by using the actual costs in April and May, when 8,600 and 11,300 cars were washed, respectively. The following are total costs for these two months:
April
May
$5,160
$6,780
$1,720
$2,260
$26,220
$33,510
$9,180
$11,340
$3,400
$3,400
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 October?
2. Using account analysis, what is the accountant's estimate of variable costs per unit for October?
Part B (6 tries; 5 points)
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
Variable Portion
Soap, cloths, and supplies$5,760
$5,760
Water$4,800
$4,800
Car wash labor$26,910
$24,000
Power for conveyor$10,360
$7,680
Supervisor and cashier$3,000
$0
Explanation / Answer
Answer: Part A (1) Particulars Amount ( $) Part B Particulars Amount ( $) Car Wash Labour ( fixed labour) 2,910 Total costs at high level of Production (6,780+2,260+33,510+11,340+3,400) 57,290 Power for Conveyor 2,680 Total costs at Low level of Production (5,160+1,720+26,220+9,180+3,400) 45,680 Supervisor and Cashier 3,000 Difference in Costs ( A) 11,610 Estimated total fixed Cost for october 8,590 Note : fixed cost = Total cost - variable Cost Production at high level 11,300 Production at high level 8,600 Part A (2) Particulars Amount ( $) Difference in Production (B) 2,700 Soap, Clothes and supplies 5,760 Water 4,800 therefore variable cost per unit (A)/(B) 4.30 Car wash Labour 24,000 Power for Conveyor 7,680 Part B (1) Estimated fixed costs= Total costs - variable costs Amount ( $) Supervisor and Cashier - 57290-(11300*4.3) 8,700 Estimated Total Variable cost for October 42,240 45680-(8600*4.3) 8,700 Estimated variable cost per unit (42,240/10,500) 4.02 Estimated Variable Costs Amount ( $) Part B(2) 10500*4.3 45,150
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