Scott Andrew owns and operates a car-detailing business named "Super Shine & Detailing." For $150, Scott's business will hand wash and wax customers' cars, vacuum the interior, and thoroughly clean the upholstery, wheels, tires, and windows. In addition, Scott's business will pick up each customer's car in the morning and return it to the customer's workplace or home, as instructed.

Buoyed by the success of his first shop, Scott plans to expand his business to another location. Similar to his current location, Scott is committed to using only full-time employees at the new location. As his business expands, Scott believes it will become increasingly important to understand his cost structure. To this end, he seeks your help in estimating his fixed costs, the variable cost of detailing a car, and the annual cost per employee. Scott has provided you with the following data for the most recent three years of operations at his present location:

Scott believes that his cost structure has not changed over the last three years and that one employee, working diligently, can detail three cars per day. Super Shine & Detailing is open for business 300 days a year.
Required:
a. How does the cost of employees vary with the number of cars detailed? Is the cost of employees a fixed cost, a variable cost, or a step cost? Why?
b. Using the data provided, estimate Scott's annual fixed costs, the annual cost per employee, and the variable cost per car detailed.

Transcribed Image Text:

Year Cars DetailedNo. of Employes Total Costs $129,000 $137,000 $183.000 1,200 1,600 2.400 9