Question

2-AI Fixed- and Variable-Cost Behavior Maintaining a clean working environment is important to Napco, an industrial parts manufacturer. Cleaning the plant is the responsibility of the maintenance department. The 50,000 square foot plant is thoroughly cleaned from four to eight times a month depending on the level and stage of production For the most recent month, March, the plant was cleaned four times. The production schedule for the next quarter (April through June) indicates that the plant will need to be cleaned five, six, and eight times respectively. Two of the resources needed to clean the plant are labor and cleaning supplies. The cost driver for both resources is number of times the plant is cleaned. Plant cleaning laborers are full-time employees who are paid the same wages regardless of the number of times the plant is cleaned. Cleaning supplies is a variable cost. The March cost of labor was $21,000 and cleaning supplies used cost $8,000. 1. Prepare a table that shows how labor cost, cleaning supplies cost, total cost, and total cost per cleaning changes in response to the number of times the plant is cleaned. What is the predicted total cost of plant cleaning for the next quarter? 2. Suppose Napco can hire an outside cleaning company to clean the plant as needed. The charge $5,700 per plant cleaning. If the outside cleaning company is hired, Napco can lay off the workers who are now cleaning the plant and will spend nothing for cleaning sup. plies. Will Napco save money with the outside cleaning company over the next quarter? Prepare a schedule that supports your answer

Answer 1

Above question is whether to clean the plant by Thier own company workers or have to go outsourcing. Refer the below images for the above mentioned questions, in a detailed way of solution with explanation.

Requirement 1 : The cost driver for both resources is number of times the plant is cleaned - Labor cost and cleaning supplies is a variable Cast 4 and 8 times a month are: as a costs fixed for tost resource, cleaning between Number of times plant is cleaned cleaning Saquare cleaned Cost per cleaning labor cost Cost ** 200000 $2,000 $8000** $29000 $7250 21000 10000 31000 21000 12000 250000 3ooooo 350000 400000 33000 35000 $6200 85500 $5000 $4625 21000 TODO 2100 6000 37000 Nate points : * ** 4x50000 souare feet cleaning supplies cost per time the plant - $ 8000 : 4 = $2000 is cleared. *** $2000 per cleaning & no. of times plant is cleaned. The predicted next quarter Cleanings of total cost is the 36 and to son 8 clean the plant during the of the total costs for monthly times. This is $31000 33000 + $ 37000 = $ 101000.

Requirement @ : If Napro hives outside cleaning company, all its cleaning costs will be variable at a rate of $5too per cleaning. The cost driver will be number of times cleaned". The predicted cost to clean a total of 5+ 6+ 8 = 19 times is 19+ $5700 = $ 108300 Thos, Napeo will say by not hiring the outside cleaning company. The table below shows that it Napro expects average it would save by cleaning expects to average scor save by outsourcing. the total costs for the two alternatives. "times cleaned " to be 6 108) more, with its own employees. If Nopco fewer cleanings per month, it would out source cleaning plant Napco cleaned cleans plant Napco Times Times cleaned outside $ 22800 $29000 $31000 $28500 $ 33000 & 34200 mo ito $ 35ooo $ 39900 $ 37000 $ 45600