Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Pizza

ID: 2426594 • Letter: C

Question

Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation
Assume a Pizza Inn restaurant has the following information available regarding costs at representative levels of monthly sales:

A) 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.

B) Predict total costs for a monthly sales volume of 9,900 units

Monthly sales in units 5,000 8,000 10,000 Cost of food sold $15,000 $24,000 $30,000 Wages and fringe benefits 4,350 4,560 4,700 Fees paid delivery help 1,300 2,080 2,600 Rent on building 1,300 1,300 1,300 Depreciation on equipment 400 400 400 Utilities 750 840 900 Supplies (soap, floor wax, etc.) 150 180 200 Administrative costs 1,500 1,500 1,500 Total $24,750 $34,860 $41,600

Explanation / Answer

=30000-(3*10000)

= 0

= 30000-15000/10000-5000

=3 per unit

= 4700-(0.07*10000)

=4000

=4700-4350/10000-5000

=0.07 per unit

=2600-1300/10000-5000

=0.26

=900-(0.03*10000)

=600

=900-750/10000-5000

=0.03

=200-(0.01*10000)

=100

=200-150/10000-5000

=0.01

So, equation is 7900+(a)(3.37)

a= no. of units produced

B).

for 9900 units total cost should be= 7900+(9900*3.37)

=41263

Fixed Costs Variable Costs Costs of Food Sold