Roy services (Oil Change) vehicles in his garage. His lubricants cost him $40 per vehicle. His...

Roy services (Oil Change) vehicles in his garage. His lubricants cost him $40 per vehicle. His wages are $120 per hour. He spends 20 minutes per vehicle. His garage rent is $600 per month. He charges $140 to service each vehicle. His Total Fixed cost is

a. $400

b. $600

c. $720

d. $680

Solutions

Expert Solution

Variable costs are the costs which will change with the change in number of vehicles serviced by Roy. These costs may be on a per hour basis or a per vehicle basis.

On the other hand, fixed costs are the costs which are fixed and don't change with the change in the nu,ber of vehicles serviced since they will be incurred at the same fixed rate even if no vehicles are serviced.

Now, let's analyse the costs given in the question:

Lubricants cost - Is based on the number of vehicles serviced @ $40 per vehicle. Hence, it is variable in nature.

Wages - These are incurred on a per hour basis @$120 per hour. Hence, these will also depend on the number of vehicles serviced. So, these are also variable in nature.

Garage rent - This is incurred on a per month basis and not dependent on the number of vehicles serviced. Hence, this is fixed in nature @$600 per month.

Hence, option b i.e. $600 is the correct answer.

ekkarill92 answered 1 year ago

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