Fixed and variable cost behavior

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Reference no: EM131208223

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?

Reference no: EM131208223

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