Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Textbook Question
Chapter 21, Problem 1P
Wabash 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:
- 1. Unskilled laborers trim all trees and bushes within two feet of the structure.
- 2. Skilled laborers clean the building with a high-pressure cleaning machine, using about 6 gallons of chlorine per job.
- 3. Unskilled laborers apply a coat of primer.
- 4. 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:
Data on utilities for the year follow:
REQUIRED
- 1. Classify the costs as variable, fixed, or mixed.
- 2. Using the high-low method, separate mixed costs into their variable and fixed components. Use total hours worked as the basis.
- 3. Compute the average cost per job for the year. (Hint: Divide the total of all costs for the year by the number of jobs completed.) Use estimated hours to determine utilities costs. (Round to two decimal places.)
- 4. BUSINESS APPLICATION Project the average cost per job for next year if variable-costs per job increase 20 percent. (Round to two decimal places.)
- 5. ACCOUNTING CONNECTION Why can actual utilities costs vary from the amount computed using the utilities cost formula?
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