Question

Bargain Rental Car offers rental cars in an off-airport location near a major tourist destination in California. Management would like to better understand the variable and fixed portions of its car washing costs. The company operates its own car wash facility in which each rental car that is returned is thoroughly cleaned before being released for rental to another customer. Management believes that the variable portion of its car washing costs relates to the number of rental returns. Accordingly, the following data have been compiled: Month Rental Returns Car Wash Costs January 2,400 $ 11,300 February 2,500 $ 13,300 March 2,800 $ 12,100 April 3,100 $ 14,700 May 3,700 $ 16,500 June 5,100 $ 23,900 July 5,600 $ 22,500 August 5,600 $ 22,900 September 4,700 $ 23,100 October 4,100 $ 22,000 November 2,200 $ 11,000 December 2,900 $ 15,300

Answer 1

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Bargain Rental Car

High Low method

Variable cost= (Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)

Answer 1	Month	Rental returns	Car wash costs
Highest activity	September	4,700.00	23,100.00
Lowest activity	November	2,200.00	11,000.00
Change		2,500.00	12,100.00
Variable cost per hour		4.84
Fixed cost:	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost:	23100-(4700*4.84)
Fixed cost	352.00