ACCOUNTING 122-Cost Behavior and Projection for a Service Business
Problem 19-1 Cost Behavior and Projection for a Service BusinessWabash Company specializes in refurbishing exterior painted surfaces that have been hard hit by humidity and insect debris. It uses a special technique, called pressure cleaning, before priming and painting the surface. The refurbishing process involves the following steps:Unskilled laborers trim all trees and bushes within two feet of the structure.Skilled laborers clean the building with a high-pressure cleaning machine, using about 6 gallons of chlorine per job.Unskilled laborers apply a coat of primer.Skilled laborers apply oil-based exterior paint to the entire surface.On average, skilled laborers work 12 hours per job, and unskilled laborers work 8 hours. The refurbishing process generated the following operating results during the year on 500 jobs:Skilled labor$20per hourUnskilled labor$8per hourGallons of chlorine used3,000gallons at $5.50 per gallonPaint primer7,536gallons at $15.50 per gallonPaint6,280gallons at $16.00 per gallonDepreciation of paint-spraying equipment$600per month depreciationLease of two vans$800per month totalRent on storage building$421per monthData on utilities for the year follow:MonthNumber of JobsCostHours workedJanuary42$ 3,950840February373,550740March444,090880April494,410980May544,7201,080June625,2401,240July715,8201,420August735,8901,460September635,3701,260October484,340960November454,210900December403,830800Totals628$55,42012,560Using the high-low method, separate mixed costs into their variable and fixed components. Use total hours worked as the basis. Round variable rate to two decimal places.Variable rate$ 3.25 per hour workedMonthly fixed cost$ 11453. Compute the average cost per job for the year. Round your answer to two decimal places. (Hint: Divide the total of all costs for the year by the number of jobs completed.) Use estimated hours to determine utilities costs.$ per job4. Project the average cost per job for next year if variable costs per job increase 20 percent. Round your intermediate calculations and final answer to two decimal places.$ per job
