# 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

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?

Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...

**Transcribed Image Text:**

## Tanning Number of Supplies and Equipment Visits 410 380 560 Wages Maintenance Depreciation Electricity Minutes anuary February March S1,750 1,670 1,800 S1,450 1,900 4,120 S150 150 150 S300 410 680 4,100 3,890 6,710

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**Related Book For**

## Cornerstones of Cost Management

**ISBN:** 978-1285751788

3rd edition

**Authors:** Don R. Hansen, Maryanne M. Mowen

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