Chapter 3, Problem 15E

Penny Davis runs the Shear Beauty Salon near a college campus. Several months ago, Penny used some unused space at the back of the salon and bought two used tanning beds. She hired a receptionist and kept the salon open for extended hours each week so that tanning clients would be able to use the benefits of their tanning packages. After three months, Penny wanted additional information on the costs of the tanning area. She accumulated the following data on four accounts:

Penny decided that wages and equipment depreciation were fixed. She thought supplies and maintenance would vary with the number of tanning visits and that electricity would vary with the number of tanning minutes.

Required:

1. 1. Calculate the average account balance for each account. Calculate the average monthly amount for each of the two drivers. (Round all answers to the nearest dollar or the nearest whole unit.)
2. 2. Calculate fixed monthly cost and the variable rates for the account averages. (Round to the nearest cent.) Express the results in the form of an equation for total cost.
3. 3. In April, Penny predicts there will be 360 visits for a total of 3,700 minutes. What is the total cost for April?
4. 4. Suppose that Penny decides to buy a new tanning bed at the beginning of April for $6,960. The tanning bed is expected to last four years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in April?