Bargain Rental Car offers rental cars in an off-airport location near a major to

Question

Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California Management would like to better understand the variable and fixed portions of it car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled Month January February March April May June July August September October November December Rental Returns Car Wash Costs 2,380 2,421 2,586 2,725 2,968 3,281 3,353 3,489 3,057 2,876 2,735 2,983 10,82!5 $ 11,86!5 $ 11,332 $ 12,422 $ 13,850 $ 14,419 $ 14,935 $ 15,738 $ 13,563 $ 11,889 $ 12,68:3 $ 13,796 2. Using esults of the regression analysis provided in the separate handout on Sakai, estimate the variable cost per rental return and the monthly fixed cost incurred to wash cars. (Round Fixed cost to the nearest whole dollar amount and the Variable cost per unit to 2 decimal places.) Fixed cost per month Variable cost per rental return

Explanation / Answer

From above high cost is in the month of august and low cost in the month of january

Variable Cost = Change in Cost / Change in activity

= (15738-10825) / (3489-2380)

= $4.43 per rental return

Fixed Cost = Total Cost - Variable Cost

= 15738 - 3489 x 4.43

= $281.32

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