Case Study

Fixed and Variable Cost Behavior

Maples has a production plant where keeping a clean working environment is important to them. Cleaning
the plant is the responsibility of the maintenance department. Two of the resources needed to clean the
plant are labor and cleaning supplies. The cost driver for both resources is square feet cleaned. Plant
cleaning laborers are paid the same wages regardless of the number of times the plant is cleaned. Cleaning
supplies is a variable cost. The 25,000 square foot plant is thoroughly cleaned from four to eight times a
month depending on the level and stage of production. For the most recent month, June, the plant was
cleaned four times. The June cost of labor was $15,000 and cleaning supplies used cost $4,250. The
production schedule for the next quarter (July through September) indicates that the plant will need to
be cleaned five, six, and eight times respectively

In Excel

1. Prepare a table that shows how labor cost, cleaning supplies cost, total cost, and total
cost per square feet cleaned changes in response to the square feet cleaned. What is the
predicted total cost of plant cleaning for the next quarter?

2. Suppose Maples can hire an outside cleaning company to clean the plant as needed. The
charge rate for cleaning is $3,500 per plant cleaning. If the outside cleaning company is
hired, Maples can lay off the workers who are now cleaning the plant and will spend
nothing for cleaning supplies. Will Maples save money with the outside cleaning company
over the next quarter? Prepare a schedule that supports your answer.

3. Create a line chart that reflects the Total Cleaning Costs and Square Feet (Times Cleaned)
for the two options (Maples vs Outside Company). Must be properly labeled and on one
chart.

4. At what level of activity (SqFt Cleaned) will the two options be indifferent?