# Question: Penny Davis runs the Shear Beauty Salon near a college

Penny Davis runs the Shear Beauty Salon near a college campus. Several months ago, Penny used some unused space at the back of the salon and bought two used tanning beds. She hired a receptionist and kept the salon open for extended hours each week so that tanning clients would be able to use the benefits of their tanning packages. After three months, Penny wanted additional information on the costs of the tanning area. She accumulated the following data on four accounts:

Penny decided that wages and equipment depreciation were fixed. She thought supplies and maintenance would vary with the number of tanning visits and that electricity would vary with the number of tanning minutes.

Required:

1. Calculate the average account balance for each account. Calculate the average monthly amount for each of the two drivers.

2. Calculate fixed monthly cost and the variable rates for the account averages. Express the results in the form of an equation for total cost.

3. In April, Penny predicts there will be 360 visits for a total of 3,700 minutes. What is the total cost for April?

4. Suppose that Penny decides to buy a new tanning bed at the beginning of April for $6,960. The tanning bed is expected to last four years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in April?

Penny decided that wages and equipment depreciation were fixed. She thought supplies and maintenance would vary with the number of tanning visits and that electricity would vary with the number of tanning minutes.

Required:

1. Calculate the average account balance for each account. Calculate the average monthly amount for each of the two drivers.

2. Calculate fixed monthly cost and the variable rates for the account averages. Express the results in the form of an equation for total cost.

3. In April, Penny predicts there will be 360 visits for a total of 3,700 minutes. What is the total cost for April?

4. Suppose that Penny decides to buy a new tanning bed at the beginning of April for $6,960. The tanning bed is expected to last four years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in April?

**View Solution:**## Answer to relevant Questions

Shirrell Blackthorn is the accountant for several pizza restaurants based in a tri-city area. The president of the chain wanted some help with budgeting and cost control, so Shirrell decided to analyze the accounts for the ...Lassiter Company used the method of least squares to develop a cost equation to predict the cost of moving materials. There were 80 data points for the regression, and the following computer output was generated: Intercept ...The regression analysis results for ABC Co. are shown as y = 90x + 45. The standard error (Se) is 30, and coefficient of determination (R2) is 0.81. The budget calls for production of 100 units. What is ABCâ€™s estimate of ...DeMarco Company is developing a cost formula for its packing activity. Discussion with the workers in the Packing Department has revealed that packing costs are associated with the number of customer orders, the size of the ...Dohini Manufacturing Company, using 12 months of data on purchasing cost and number of purchase orders, ran a regression equation that yielded the following information on the intercept, X variable 1, and standard error. ...Post your question