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:

Skilled labor	$20 per hour
Unskilled labor	$8 per hour
Gallons of chlorine used	3,768 gallons at $5.50 per gallon
Paint primer	7,536 gallons at $15.50 per gallon
Paint	6,280 gallons at $16 per gallon
Depreciation of paint-spraying	$600 per month depreciation
equipment	Â
Lease of two vans	$800 per month total
Rent on storage building	$450 per month

Data on utilities for the year are as follows:

Month	Number of Jobs	Cost	Hours Worked
January	42	$3,950	$840
February	37	3,550	$740
March	44	4,090	880
April	49	4,410	$980
May	54	4,720	1,080
June	62	5,240	$1,240
July	71	$5,820	1,420
August	73	$5,890	$1,460
September	63	5,370	1,260
October	48	$4,340	960
November	45	4,210	900
December	40	3,830	800
Totals	628	$55,420	12,560

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)?