Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Jimmy
ID: 2425827 • Letter: C
Question
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Jimmy John's restaurant has the following information available regarding costs at representative levels of monthly sales: Monthly sales in units 5,000 8,000 10,000 Cost of food sold $ 10,000 $ 16,000 $ 20,000 Wages and fringe benefits 4,250 4,400 4,500 Fees paid delivery help 1,250 2,000 2,500 Rent on building 1,200 1,200 1,200 Depreciation on equipment 600 600 600 Utilities 500 560 600 Supplies (soap, floor wax, etc.) 150 180 200 Administrative costs 1,300 1,300 1,300 Total $ 19,250 $ 26,240 $ 30,900 (a) Identify each cost as being variable, fixed, or mixed. Cost of food sold Fixed Mixed Variable Wages and fringe benefits Fixed Variable Mixed Fees paid delivery help Fixed Mixed Variable Rent on building Fixed Mixed Variable Depreciation on equipment Variable Fixed Mixed Utilities Variable Fixed Mixed Supplies (soap, floor wax, etc.) Variable Fixed Mixed Administrative costs Fixed Mixed Variable (b) Use the high-low method to develop a schedule identifying the amount of each cost that is fixed per month or variable per unit. Total the amounts under each category to develop an equation for total monthly costs. Round variable cost answers to two decimal places. Fixed Costs Variable Costs Cost of food sold Answer 0 Answer 2 X Wages and fringe benefits Answer 0 Answer 0.05 X Fees paid delivery help Answer 0 Answer 0.25 X Rent on building Answer 1,200 Answer 0 X Depreciation on equipment Answer 600 Answer 0 X Utilities Answer 0 Answer 0.02 X Supplies (soap, floor wax, etc.) Answer 0 Answer 0.01 X Administrative costs Answer 1,300 Answer 0 X Total costs equation Answer 3,100 Answer 2.33 X * where X = Unit sales (c) Predict total costs for a monthly sales volume of 10,000 units. $Answer 26,400
I AM GETTING AN ERROR CODE AND CANNOT FIGURE OUT WHERE I AM GOING WRONG. PLEASE ASSIST
Explanation / Answer
Answer:
Monthly sales in units: 5,000 8,000 10,000
(a) Identification of costs as fixed or variable:
(b) High low method for determining the costs:
High low method is dependent upon two factors the total amount of expense made during the highest level of activity production and the expenditure incurred at lowest level of activity.
1. Cost of goods sold: At highest level of activity i.e. 10,000 units the cost is $20,000
At lowest level it 5,000 units it is $10,000
Difference in expenditure = $10,000
Difference in units sold = 5,000 units
Therefore the variable cost per unit sold is $10,000/5,000 units = $2
2. Wages and fringe benefits:
Units sold Expenditure
10,000 $4,500
5,000 $4,250
5,000 units $ 250
Variable cost per unit = $0.05 per unit
Fixed cost can be calculated as under:
at 10,000 units variable cost = 10,000units * $0.05 = $500
Fixed cost = $4,500 - $500 = $4,000
3. Fees paid for delivery help:
Units Expenditure
10,000 2,500
5,000 1,250
Diff 5,000 1,250
Variable cost per unit = $1,250 / 5,000 units = $0.25
4. Utilities:
Units Exp
10,000 600
5,000 500
5,000 100
Variable cost per unit = $100/5,000units = $0.02
Fixed cost = $600 - $200 = $400
10,000 units * $0.02 = $200
(5) Supplies:
Units Exp
10,000 200
5,000 150
5,000 $50
Variable cost per unit = $50/5,000 units = $0.01
Fixed cost = $200 - $100 = $100
(c) Total costs for a monthly sales volume of 10,000 units:
Cost of food sold $20,000
Wages and fringe benefits 4,500
Depreciation 600
Fees paid on delivery 2,500
Rent 1,200
Utilities 600
Supplies 200
Administrative costs 1,300
Total costs $30,900
Sr.no Expenses Fixed or mixed 1. Cost of food sold Variable 2. Wages and fringe benefits Mixed 3. Fees paid for delivery help Variable 4. Rent on building Fixed 5. Depreciation on equipment Fixed 6. Utilities Mixed 7. Supplies Mixed 8. Administrative costs Fixed