Water Works Plumbing Company

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1. Water Works Plumbing Company is a small owner-managed plumbing services company that serves the greater Miami metropolitan area. Identify each of the following costs as either a vari­able, a fixed, or a quasi-fixed cost and give a detailed explanation.
a)  Gasoline expense for the service van.
b)  Cost of the owner’s time to run the plumbing business.
c)  Cost of a complete set of tools needed to be a plumber.
d)  Labor expense for an assistant plumber who is hired on an hourly basis and works with the owner-manager of the firm when the owner needs a helper.
e)  Monthly lease payment for a drain-line auger, which contractually binds WW Plumbing to pay $75 per month for the next 12 months, regardless of how much or how little the company uses the leased piece of plumbing equipment.  Subleasing is prohibited and there will be no refund if the machine is returned before the 12 month period expires.
f)  Expense for plumbing service consumables: plumbers’ putty, Teflon tape, pipe lubricant, sandpaper, PVC glue, butane for torch, etc.
2. The production engineers at Impact Industries have derived the optimal combinations of labor and capital.  These are the only two inputs used by Impact.  The following chart shows the combinations of labor and capital for three levels of output.
Q is the output level.  L* is the optimal amount of labor.  K* is the optimal amount of capital.  The price of labor is $90 per unit.  The price of capital is $15 per unit.
     Q     L*      K*
  120     5    20
  180     7     7
  240    12    24
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