Principles of Accounting Volume 2
19th Edition
ISBN: 9781947172609
Author: OpenStax
Publisher: OpenStax College
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Chapter 10, Problem 15PB
Dr. Detail is a mobile car wash. The price for a standard wash is $35 and takes half an hour. Each worker is paid $20/hr, uses $5 of materials and $0.50 per mile to use their own vehicle to travel from job to job.
The average job is 5 miles.
Ernest Kuhn’s son got sick in the car, and Ernest Kuhn has asked Dr. Detail to detail his car instead of doing a simple wash and vacuum.
A. Determine the differential income if $100 was charged to detail the car. Each car detail will take 2 hours. The materials used by the worker is three times that of a standard car wash.
B. If the price is raised to $150, what is the differential income change?
C. Keeping the price at $150, if the worker rate per hour would increase to $20/hr how would the differential income change? Prepare an Excel spreadsheet.
D. What other issues would you need to consider?
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TidyCar washes vehicles using a nohands approach. Business is good but Jonathan, the manager, has noticed that customers complain because there are streaks on their vehicles at pickup. TidyCar warrants that each vehicle will sparkle at delivery and charges $25 for each vehicle. TidyCar washes 100 vehicles each day and last month, 40% of them required a hand finish. Each hand wash costs $15. Jonathan believes the problem can be eliminated by a prewash (costing $2 per vehicle) and an equipment calibration at the start of each day, which will reduce the number of vehicles washed each day by 10, but will decrease the vehicles requiring a hand finish from 40% to 10%.
Q. Should TidyCar implement Jonathan’s idea? Show your calculations
TidyCar washes vehicles using a nohands approach. Business is good but Jonathan, the manager, has noticed that customers complain because there are streaks on their vehicles at pickup. TidyCar warrants that each vehicle will sparkle at delivery and charges $25 for each vehicle. TidyCar washes 100 vehicles each day and last month, 40% of them required a hand finish. Each hand wash costs $15. Jonathan believes the problem can be eliminated by a prewash (costing $2 per vehicle) and an equipment calibration at the start of each day, which will reduce the number of vehicles washed each day by 10, but will decrease the vehicles requiring a hand finish from 40% to 10%.
Q. What nonfinancial and qualitative factors should TidyCar consider in deciding whether to implement the new design?
Chapter 10 Solutions
Principles of Accounting Volume 2
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