Wanda runs a home laundry service, Kwicky Washy Ltd, where customers’ laundry is collected, washed, ironed, and delivered back to them for a set charge per bag.

The service is offered to customers only within a limited radius of Oxford City Centre.

The following outgoings are associated with her business:

* Petrol costs average £2 per customer.

° The average customer sends two bags to the laundry service.

° The electricity costs for washing and drying are £1 per bag, and detergent costs 50 pence per bag.

* Wanda employs casual staff to handle, fold, and iron the laundry. They are paid £8 per hour, and each bag takes 1 hour, on average, of their time.

These staff are paid only for the hours they actually work.

° Wanda acts as delivery driver, book-keeper, and salesperson. She is paid a salary of £22,000 per annum.

° The delivery van depreciates at the rate of £4,000 per annum and the laundry machines (washers and dryers) at 20 pence per bag washed.

° Other van expenses include tax, insurance, and maintenance and amount to £2,000 per annum.

REQUIRED:

a) Identify which of the above costs are fixed and which are variable.

b) Calculate the variable cost per bag of laundry laundered.

c) Calculate the total fixed costs per annum.

d) Comment on the relative significance of fixed and variable costs in the above two businesses: Pippa's in question 10.1 and Wanda’s Kwicky Washy in question 10.2.