Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Jimmy
ID: 2454024 • 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
Note 1: The costs which are same irrespective of the change in the volume of production are fixed costs.
Total Cost equation:
Total cost = $7600 + $2.33x, where x is he number of units produced.
predicted total cost for a sale of 10000 units based on the cost equation:
Total cost = $7600 + $2.33 * 10000 = $7600 + $23300 = $$30900
Cost Items No. Of units Difference in the total cost variable cost per unit Fixed cost Calculation of fixed cost 5,000 10,000 Cost of food sold($) 10000 20000 10000 2 0 = $10000 - 5000 units * $2/unit Wages and fringe benefits 4,250 4,500 250 0.05 4000 = $4250 - 5000 units * $0.05/unit Fees paid delivery help($) 1,250 2,500 1250 0.25 0 =$1250 - 5000*$0.25/unit Rent on building ($) 1,200 1,200 0 0 1200 Note 1 Depreciation on equipment ($) 600 600 0 0 600 Note 1 Utilities ($) 500 600 100 0.02 400 = $500 - 5000 units * $0.02/unit Supplies (soap, floor wax, etc.) ($) 150 200 50 0.01 100 = $150 - 5000 units * $0.01/unit Administrative costs ($) 1,300 1,300 0 0 1300 Note 1 Total ($) 19250 30900 2.33 7600 = $10000 - 5000 units * $2/unit