LON-CAPA%20#2 Cost Estimation

LON-CAPA%20#2 Cost Estimation - Lorenzo operates a...

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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. In 2006, Lorenzo's accountant used two different approaches to estimating total monthly costs, account analysis and high- low. In both cases, she used the number of cars washed as the independent variable. For the account analysis approach, she developed the cost function parameter estimates by analyzing actual costs in June, when 11,300 cars were washed, and estimating the fixed portion of each cost item. The following are the June costs and her fixed cost estimates: Cost Item Total Cost Fixed Portion Soap, cloths, and supplies $2,260 $0 Water $4,520 $0 Car wash labor $31,040 $2,790 Power for conveyor $13,850 $2,550 Supervisor and cashier $3,600 $3,600
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