2024 – Lorenzo operates a brushless car wash Incoming cars are put on an automatic continuously moving conveyor
COST ESTIMATION – 2024
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 10,350 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 | $4,800 | $5,160 | $7,020 |
| Water | $2,400 | $1,720 | $2,340 |
| Car wash labor | $24,000 | $24,500 | $32,250 |
| Power for conveyor | $9,150 | $12,460 | $15,870 |
| Supervisor and cashier | $3,700 | $4,600 | $4,600 |
| Total | $44,050 | $48,440 | $62,080 |
| Cars washed | 8,000 | 8,600 | 11,700 |
For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in June. Her analysis revealed the following variable cost components for each cost item:
| Soap, cloths, and supplies | $4,800 |
| Water | $2,400 |
| Car wash labor | $21,600 |
| Power for conveyor | $6,400 |
| Supervisor and cashier | $0 |
| Total | $35,200 |
For the high-low method, she developed cost function parameter estimates using the July and August data.
REQUIRED [ROUND PER-UNIT COSTS TO TWO DECIMAL PLACES AND TOTAL COSTS TO THE NEAREST DOLLAR.]
Part A
1. Using account analysis, what is the accountant’s estimate of total fixed costs for December?
2. Using account analysis, what is the accountant’s estimate of variable costs per unit for December?
Part B
1. Using the high-low method, what is the accountant’s estimate of total fixed costs for December?
2. Using the high-low method, what is the accountant’s estimate of total variable costs for December?
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