Question

PART B Lube-for-Less is a car centre specializing in 10 minute oil changes. The company has two service people, which limits its capacity to 3,600 oil changes per month. The following information was collected over the past six months: Month Number of oil changes Operating expenses January 3,400 $36,800 February 2,700 32,100 March 3,000 33,300 April 2,900 32,900 Mau 3,500 37,700 June 3,100 34,100 Required: 1. Use the high-lo method to determine the variable and fixed cost components of the company's operating costs. 2. What are the projected operating costs if the company does 3,600 oil changes?

Answer 1

Required 1

		No of oil changes	Operating expenses
Highest point	May	3,500	37,700
Lowest point	Feb	2,700	32,100
Difference		800	5,60

Variable cost	Fixed cost
= Difference in Operating expenses / Difference in No of oil changes = 5,600 / 800 = 7	= Total cost - Variable cost = 32,100 - (2,700*7) = 13,200
Variable cost: $7	Fixed cost: $ 13,200

Required 2

Variable cost (3,600*7)	25,200
Fixed cost	13,200
Total cost	38,400