Account analysis method. (20 minutes) 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 2000. Lorenzo-Netto reports the following costs for 2000: lop5

1. Classify each account as variable or fixed with respect to cars washed. Explain. 2. Lorenzo-Netto expects to wash 90,000 cars in 2001. Use the cost classification you developed in requirement 1 to estimate Lorenzo-Netto’s total costs in 2001. 3. Calculate the average cost of washing a car in 2000 and 2001. (Use the expected 90,000 car wash level for 2001.)

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ACCOUNT DESCRIPTION Car wash labour COSTS Lit 240,000,000 Soap, cloth and supplies 32,000,000 Water 28,000,000 Power to move conveyor belt 72,000,000 Depreciation 64,000,000 Supervision 30,000,000 Cashier 16,000,000