Account analysis method. Lorenzo operates a car wash. Incoming cars are put on an automatic conveyor belt. Cars are washed as the conveyor belt carries them from the start station to the finish station. After a car moves off the conveyor belt, it is dried manually. Workers then clean and vacuum the inside of the car Lorenzo serviced 80,000 cars in 2009. Lorenzo reports the following costs for 2009.

1. Classify each account as variable or fixed with respect to the number of cars washed. Explain.

2. Suppose Lorenzo washed 90,000 cars in 2009. Use the cost classification you developed in requirement 1 to estimate Lorenzo’s total costs in 2009. Depreciation is computed on a straight-line basis.

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Account Description Car wash labor Soap, cloth, and supplies Costs $260,000 42,000 Water 38,000 Electric power to move conveyor belt 72,000 64,000 46,000 Depreciation Salaries