Question

Henley operates a mobile car detailing service. Henley travels to a customer’s home or place of business to wash and detail their car. Since many locations are remote, Henley’s trucks carry water to the location where the car will be washed. Typically, only one car is washed and detailed per location. Henley serviced 60,000 cars in 2012. Henley reports the following costs for 2012:
Account Description Costs Car wash labor $ 240,000 Soap, cloth, and supplies 39,000 Water 36,000 Fuel and other transportation costs 132,000 Depreciation 68,000 Salaries 52,000

Required
1. Classify each account as variable or fixed for the number of cars washed. Explain.
2. Suppose Henley washed 75,000 cars in 2012. Use the cost classification you developed in requirement 1 to estimate Henley’s total costs in 2012. Depreciation is computed on a straight- line basis.
3. Why is it important to correctly classify costs as variable or fixed? That is, what would happen if Henley misclassified some of the costs? Explain.



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  • CreatedJanuary 15, 2015
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