Lorenzo operates a brushless car wash. A cashier is thecustomer’s first point of contact and is always on duty duringoperating hours. The cashier determines the level of wash(standard,deluxe, or extreme) and collects the price of the wash. Incomingcars are put on a continuously moving conveyor belt. The belt runsregardless of wether there is a car being washed. Cars are washedas the conveyor belt carries the car from the start station to thefinish station. After the car moves off the conveyor belt, the caris dried manually by hourly workers.Workers also clean and vacuumthe inside of the car. The number of cars being washed determinethe number of hourly workers needed. Workers are managed by singlesupervisor. Lorenzo served 80,000cars in 2016. Lorenzo reports thefollowing costs for 2016:
Fixed Variable
Car wash hourly wages—————————————————–$240,000
Soap, cloth,and supplies—————————————————32,000
Water——————————————————————————-28,000
Power to move conveyor belt————————————————72,000
Depreciation———————————————————————–64,000
Supervision salary per year————————————————–30,000
Cashier salary part-time——————————————————–16,000
Required:
(1) Classify each cost as variable or fixed with respect to thenumber of cars washed.
(2) Lorenzo expects to wash 90,000 cars in 2017. Use the costclassification devoloped in requirement #1 to estimate Lorenzo’stotal cost in 2017.
(3) Calculate the average cost of washing a car in 2016 and 2017(use the 80,000 actual for 2016 and the expected 90,000 car washlevel for 2017) – Explain your answer as to why the average cost”per car” has changed and why it wnt up or down.
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