power brite painting company specializes in refurbishing exterior painted surfaces t 544671

Cost Behavior and Projection for a Service Business

Power Brite Painting 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 628 jobs:

Data on utilities for the year are as follows:

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.)

4. Project the average cost per job for next year if variable costs per job increase 20 percent.

5. Why can actual utility costs vary from the amount computed using the utilities cost formula (requirement 2)?