Question

Janice Huffman has decided to start Rooney Cleaning, a residential housecleaning service company. She is able to rent cleaning equipment at a cost of $750 per month. Labor costs are expected to be $85 per house cleaned and supplies are expected to cost $9 per house.

Required

1. Determine the total expected cost of equipment rental and the average expected cost of equipment rental per house cleaned, assuming that Rooney Cleaning cleans 25, 35, or 45 houses during one month. Is the cost of equipment a fixed or a variable cost?

2. Determine the total expected cost of labor and the average expected cost of labor per house cleaned, assuming that Rooney Cleaning cleans 25, 35, or 45 houses during one month. Is the cost of labor a fixed or a variable cost?

3. Determine the total expected cost of supplies and the average expected cost of supplies per house cleaned, assuming that Rooney Cleaning cleans 25, 35, or 45 houses during one month. Is the cost of supplies a fixed or a variable cost?

4. Determine the total expected cost of cleaning houses, assuming that Rooney Cleaning cleans 25, 35, or 45 houses during one month.

5. Determine the average expected cost per house, assuming that Rooney Cleaning cleans 25, 35, or 45 houses during one month.

Answer 1

Solution

Rooney Cleaning

Determination of the total expected cost of equipment rental and the average expected cost of equipment rental per house cleaned, assuming that the company cleans 25, 35 or 45 houses during one month:

Is the cost of equipment a fixed or a variable cost?

Rental cost of equipment per month = $750

a. expected cost of equipment rental and average cost of equipment rental per house cleaned: Houses Cleaned 25 35 45 Cost of Equipment Rental $750 $750 $750 Average cost of equipment rental $30 $21.43 $16.67 Total cost of equipment rental $750 $750 $750

Computation of average cost of equipment rental –

For 25 houses cleaned = $750/25 = $30 per house cleaned

For 35 houses cleaned = $750/35 = $21.43 per house cleaned

For 45 houses cleaned = $750/45 = $16.67 per house cleaned

The cost of equipment rental is a fixed cost.

The cost is fixed for each month at $750.

Explanation – Regardless of number of houses cleaned, Rooney Cleaning has to pay $750 each month for the equipment rental. Hence, the volume of sales/services (number of houses cleaned) has no affect on the cost of equipment rental. The cost remains fixed for each month.

Fixed remains constant in total and changes per unit. Hence, average cost of equipment rental changes with the different number of houses cleaned.

Determination of the total expected cost of labor and the average expected cost of labor per house cleaned, assuming the company cleans 25, 35 or 45 houses during one month:

Is the cost of labor a fixed or a variable cost?

Cost of labor = $85 per house cleaned

Cost of labor and average cost of labor per house cleaned: Houses Cleaned 25 35 45 Cost of labor per house cleaned $85 $85 $85 Expected Cost of Labor per month $2,125 $2,975 $3,825 Average cost of labor per house cleaned $85 $85 $85

Expected cost of labor per month = number of houses cleaned x cost of labor per house cleaned

25 houses = 25 x $85 = $2,125

35 houses = 35 x $85 = $2,975

45 houses = 45 x $85 = $3,825

Average cost of labor per house = expected cost of labor per month/number of houses cleaned per month

The cost of labor is a variable cost.

Explanation: Variable cost remains constant per unit. The cost of labor per house remained constant at $85 per house cleaned.

The total cost changes with the change in volume of sales/services. Hence, the total expected cost of labor changed with the change in number of houses cleaned per month.

Determination of the total expected cost of supplies and the average expected cost of supplies per house cleaned, assuming the company cleans 25, 35 or 45 houses during one month:

Is the cost of supplies a fixed or a variable cost?

Cost of supplies = $9 per house cleaned

Cost of supplies and average cost of supplies per house cleaned: Houses Cleaned 25 35 45 Cost of supplies per house cleaned $9 $9 $9 Expected Cost of supplies per month $225 $315 $405 Average cost of supplies per house cleaned $9 $9 $9

Expected cost of supplies per month = number of houses cleaned x cost of supplies per house cleaned

25 houses = 25 x $9 = $225

35 houses = 35 x $9 = $315

45 houses = 45 x $9 = $405

Average cost of supplies per house = expected cost of supplies per month/number of houses cleaned per month

The cost of supplies is a variable cost.

Explanation: Variable cost remains constant per unit. The cost of supplies per house remained constant at $9 per house cleaned.

The total cost changes with the change in volume of sales/services. Hence, the total expected cost of supplies changed with the change in number of houses cleaned per month.

Determination of the total expected cost of cleaning houses and average expected cost of cleaning, assuming the company cleans 25, 35, or 45 houses during one month:

Total and average expected cost of cleaning per month: Houses Cleaned 25 35 45 Cost of Equipment $750 $750 $750 Cost of labor $2,125 $2,975 $3,825 Cost of Supplies $225 $315 $405 Total expected cost of cleaning per month: $3,100 $4,040 $4,980 Average expected cost per house cleaned $124 $115.43 $110.67

Note-

Average expected cost of cleaning = total expected cost of cleaning per month/number of houses cleaned per month

For 25 houses cleaned = $3,100/25 = $124

For 35 houses cleaned = $4,040/35 = $115.43

For 45 houses cleaned = $4,980/45 = $110.67