Lorenzo operates a car wash. Incoming cars are put on an automatic conveyor belt. Cars are washed as the conveyor belt carries the car from the start station to the finish station. After the car moves off the conveyor belt, the car is dried manually. Workers then clean and vacuum the inside of the car. Lorenzo serviced 80,000 cars in 2006. Lorenzo reports the following costs for 2006.
Account Description Costs
Car wash labor .................................. $240,000
Soap, cloth, and supplies ...................... 32,000
Water ............................................. 28,000
Electric power to move conveyor belt ........ 72,000
Depreciation ..................................... 64,000
Salaries ........................................... 46,000
Required
1. Classify each account as variable or fixed with respect to the number of cars washed. Explain.
2. Lorenzo expects to wash 90,000 cars in 2007. Use the cost classification you developed in requirement 1 to estimate Lorenzo's total costs in 2007. Depreciation is computed on a straight-line basis?