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question archive Lorenzo operates a brushless car wash

Lorenzo operates a brushless car wash

Subject:AccountingPrice:2.87 Bought7

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 costs in December, when 9,650 cars are expected to be washed. She uses two different methods to estimate December costs, account analysis and high-low, with number of cars washed as the independent variable for both methods.

To develop the cost functions, she collected the following cost and activity data for June, July, and August:


June July August
Cost item
Soap, cloths, and supplies $6,060 $5,160 $6,840
Water $6,060 $5,160 $6,840
Car wash labor $28,120 $22,480 $28,920
Power for conveyor $13,200 $9,840 $12,360
Supervisor and cashier $3,100 $3,650 $3,650
Total $56,540 $46,290 $58,610
Cars washed 10,100 8,600 11,400


For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in June. Her analysis revealed the following fixed cost components for each cost item:


Soap, cloths, and supplies $0
Water $0
Car wash labor $2,870
Power for conveyor $2,090
Supervisor and cashier $3,100
Total $8,060


For the high-low method, she developed cost function parameter estimates using the July and August data.

Part A:
Using account analysis, what is the accountant's estimate of total fixed costs for December?

Part B:
Using the high-low method, what is the accountant's estimate of total fixed costs for December?
 

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