Lorenzo-Netto, Srl, operates a brushless car wash. Incoming cars are put on an automatic, continuously moving 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. Workers are managed by a single supervisor. Lorenzo-Netto serviced 80 000 cars in 2015. Lorenzo-Netto reports the following costs for 2015:
Account description Costs
Car wash labour..............................€240 000
Soap, cloth and supplies........................32 000
Water.............................................28 000
Power to move conveyor belt..................72 000
Depreciation......................................64 000
Supervision.......................................30 000
Cashier.............................................16 000
Required
1. Classify each account as variable or fixed with respect to cars washed. Explain.
2. Lorenzo-Netto expects to wash 90 000 cars in 2016. Use the cost classification you developed in requirement 1 to estimate Lorenzo-Netto's total costs in 2016.
3. Calculate the average cost of washing a car in 2015 and 2016. (Use the expected 90 000 car wash level for 2016.)