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 9,350 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 February, when 8,200 cars were washed. The following are February total costs and her variable cost estimates:

Cost Item	Total Cost	Variable Portion
Soap, cloths, and supplies	$4,920	$4,920
Water	$3,280	$3,280
Car wash labor	$23,340	$21,320
Power for conveyor	$9,810	$7,380
Supervisor and cashier	$4,000	$0

For the high-low method, she developed cost function parameter estimates by using the actual costs in July and August, when 8,300 and 11,000 cars were washed, respectively. The following are total costs for those two months:

Cost Item	July	August
Soap, cloths, and supplies	$2,490	$3,300
Water	$2,490	$3,300
Car wash labor	$22,850	$29,600
Power for conveyor	$10,170	$12,600
Supervisor and cashier	$3,700	$3,700
Total	$41,700	$52,500

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?   

Tries 0/6

Answer 1

Estimated total fixed costs for October			$8,450
Estimated variable cost per unit for October			$4.50

Working:

Account Analysis Method
Cost item	Total	Variable	Number of	Variable	Fixed
	cost	Portion	washes	cost per wash	cost
Soap,clothes and supplies	4920	4920	8200	0.60	0
Water	3280	3280	8200	0.40	0
Car wash labor	23340	21320	8200	2.60	2020
Power for conveyor	9810	7380	8200	0.90	2430
Supervisor and cashier	4000	0	8200	0.00	4000
Total	45350	36900		4.50	8450

Part B:

1.

Total fixed costs for October

8500

2.

Total variable cost in October $4 per wash

37400

Working:

High-low method
							Variable
	Cost			Washes			Cost per
	High	Low	Difference	High	Low	Difference	wash
Soap,clothes and supplies	3300	2490	810	11000	8300	2700	0.30
Water	3300	2490	810	11000	8300	2700	0.30
Car wash labor	29600	22850	6750	11000	8300	2700	2.50
Power for conveyor	12600	10170	2430	11000	8300	2700	0.90
Supervisor and cashier	3700	3700	0	11000	8300	2700	0.00
Total	52500	41700	10800	55000	41500		4.00
Using August data we will arrive at the fixed portion of the costs:
	No.of	Total Cost	Variable Cost		Fixed Cost
	Washes		Per wash	Total
Soap,clothes and supplies	11000	3300	0.30	3300	0
Water	11000	3300	0.30	3300	0
Car wash labor	11000	29600	2.50	27500	2100
Power for conveyor	11000	12600	0.90	9900	2700
Supervisor and cashier	11000	3700	0	0	3700
Total			4.00		8500