ACCOUNTING 122-Cost Behavior and Projection for a Service Business
Subject: Business   / Accounting
Question
Problem 19-1
Cost Behavior and Projection for a Service Business
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Wabash Company specializes in refurbishing exterior painted surfaces that have been hard hit by humidity and insect debris. It uses a special technique, called pressure cleaning, before priming and painting the surface. The refurbishing process involves the following steps:
Unskilled laborers trim all trees and bushes within two feet of the structure.
Skilled laborers clean the building with a high-pressure cleaning machine, using about 6 gallons of chlorine per job.
Unskilled laborers apply a coat of primer.
Skilled laborers apply oil-based exterior paint to the entire surface.
On average, skilled laborers work 12 hours per job, and unskilled laborers work 8 hours. The refurbishing process generated the following operating results during the year on 500 jobs:
Skilled labor
$20
per hour
Unskilled labor
$8
per hour
Gallons of chlorine used
3,000
gallons at $5.50 per gallon
Paint primer
7,536
gallons at $15.50 per gallon
Paint
6,280
gallons at $16.00 per gallon
Depreciation of paint-spraying equipment
$600
per month depreciation
Lease of two vans
$800
per month total
Rent on storage building
$421
per month
Data on utilities for the year follow:
Month
Number of Jobs
Cost
Hours worked
January
42
$ 3,950
840
February
37
3,550
740
March
44
4,090
880
April
49
4,410
980
May
54
4,720
1,080
June
62
5,240
1,240
July
71
5,820
1,420
August
73
5,890
1,460
September
63
5,370
1,260
October
48
4,340
960
November
45
4,210
900
December
40
3,830
800
Totals
628
$55,420
12,560
Using the high-low method, separate mixed costs into their variable and fixed components. Use total hours worked as the basis. Round variable rate to two decimal places.
Variable rate
$ 3.25 per hour worked
Monthly fixed cost
$ 1145
3. Compute the average cost per job for the year. Round your answer to two decimal places. (Hint: Divide the total of all costs for the year by the number of jobs completed.) Use estimated hours to determine utilities costs.
$ per job
4. Project the average cost per job for next year if variable costs per job increase 20 percent. Round your intermediate calculations and final answer to two decimal places.
$ per job
