Case Study Fixed and Variable Cost Behavior Harpers Inc. has a manufacturing depot where keeping a clean working environment is important. Cleaning the depot is the responsibility of the maintenance department. Two of the resources needed to clean the depot are labor and cleaning supplies. The cost driver for both resources is square feet cleaned. Depot cleaning laborers are paid the same wages regardless of the number of times the depot is cleaned. Cleaning supplies is a variable cost. The 40,000 square foot plant is thoroughly cleaned from four to eight times a month depending on the level and stage of manufacturing. For the most recent month, June, the depot was cleaned four times. The June cost of labor was $28,000 and cleaning supplies used cost $7,500. The manufacturing schedule for the next quarter (July through September) indicates that the depot will need to be cleaned five, six, and eight times respectively In Excel 1. Prepare a table that shows how labor cost, cleaning supplies cost, total cost, and total cost per square feet cleaned changes in response to the square feet cleaned. What is the predicted total cost of depot cleaning for the next quarter? 2. Suppose Harpers can hire an outside cleaning company to clean the depot as needed. The charge rate for cleaning is $6,100 per depot cleaning. If the outside cleaning company is hired, Harpers can lay off the workers who are now cleaning the depot and will spend nothing for cleaning supplies. Will Harpers save money with the outside cleaning company over the next quarter? Prepare a schedule that supports your answer. 3. Create a line chart that reflects the Total Cleaning Costs and Square Feet (Times Cleaned) for the two options (Harpers vs Outside Company). Must be properly labeled and on one chart. 4. At what level of activity (SqFt Cleaned) will the two options be equal?

1.

Number of times depot is cleaned	4	5	6	8
	$	$	$	$
Labor cost	28,000	28,000	28,000	28,000
Cost of cleaning supplies	7,500	9,375	11,250	15,000
Total cost	35,500	37,375	39,250	43,000
Number of sq. feet cleaned	160,000	200,000	240,000	320,000
Total cost per sq. feet cleaned	0.2219	0.1869	0.1635	0.1344

2. Next quarter: Analysis as to whether depot cleaning should be outsourced:

Month	July	August	September	Quarter
Number of times depot is cleaned	5 times	6 times	8 times
Total Costs	$	$	$	$
Harpers Inc	37,375	39,250	43,000
Outside Company	30,500	36,600	48,800
Saving ( loss) in outsourcing	6,875	2,650	(5,800)	3,725

Yes, Harpers Inc. will save $ 3,725 over the next quarter if cleaning of the depot is outsourced to Outside Company.

3.

	Harper	Outside Company	Harper	Outside Company	Harper	Outside Company
Total cleaning costs	37,375	30,500	39,250	36,600	43,000	48,800
Square Feet (Times Cleaned)	200,000(5 times))	200,000(5times)	240,000(6 times)	240,000(6 times)	320,000(8 times)	320,000(8 times)

4. The two options will be equal at Fixed cost / Contribution margin per cleaning = 28,000 / ( 6,100 - 1,875*) = 6.62722 times or 6.62722 x 40,000 = 265,089 sq. ft.

* Cost of cleaning supplies per cleaning = $ 7,500 / 4 = $ 1,875

For question 3, I would like to see a line chart graph, how it can be done in excel