Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Jimmy
ID: 2454002 • 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:
(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.
* where X = Unit sales
(c) Predict total costs for a monthly sales volume of 10,000 units.
$Answer
Explanation / Answer
Jimmy John's Restaurant Units Sold Units sold Units Sold Variable cost /Unit= (Hihest Total cost-Lowest Total cost/(Highest Units produced-Lowest Units produced) Variable/Fixed Units 5,000 8,000 10,000 Cost of food sold 10,000 16,000 $20,000 $2.00 Variable Wages and fringe benefits 4,250 4,400 4,500 $0.05 Variable Fees paid delivery help 1,250 2,000 2,500 $0.25 Variable Rent on building 1,200 1,200 1,200 $0.00 Fixed Depreciation on equipment 600 600 600 $0.00 Fixed Utilities 500 560 600 $0.02 Variable Supplies (soap, floor wax, etc.) 150 180 200 $0.01 Variable Administrative costs 1,300 1,300 1,300 $0.00 Fixed Total 19,250 26,240 $30,900 Total Variable Cost per unit 2.33 Putting variable cost/unit at lowest volume5000 Variable cost at 5000 units level 11,650 Total Cost at 5000 level 19,250 Fixed cost = 7,600 Total cost derivation at 10000 units of sales Variable cost at 5000 units level @2.33/unit 23,300 Fixed cost = 7,600 Total cost at 10000 units level 30,900