You read an article in your local newspaper, The Herald Times, about your city’s expenditures on snow removal for the most recent winter. The Herald Times reports that there were 20 major snowfalls this past winter and that snow removal costs totaled $300,000. The article goes on to mention that the $300,000 was comprised of both fixed costs (e.g., plows, trucks, and some salaries) and variable costs per major snowfall (e.g., salt and sand). The article concludes by noting that the heavy snowfall this past winter has placed the city in somewhat of an unexpected budget bind—the city’s snow removal budget for the current year was based on last year’s snow removal costs of $228,000 and 12 major snowfalls.

Assume that your city’s cost structure for snow removal has remained the same in recent years. That is, the fixed costs have been the same each year and the variable costs per snowfall have been the same each year. Moreover, the city does not anticipate any change in its snow removal cost structure for the coming years.

Required:

a. Fascinated by this article, you wonder if it is possible to back into your city’s cost structure for snow removal costs using the two data points that the local newspaper provides. What are the city’s fixed and variable costs for snow removal?

b. The Farmers’ Almanac predicts that next year’s winter will be a real “doozy” and has forecasted 26 major snowfalls for your city. Based on this forecast, how much should your city budget for in snow removal costs?