Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Jimmy
ID: 2459568 • 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 Variable Fixed Mixed Wages and fringe benefits Variable Fixed Mixed Fees paid delivery help Variable Fixed Mixed Rent on building Variable Fixed Mixed Depreciation on equipment Variable Fixed Mixed Utilities Variable Fixed Mixed Supplies (soap, floor wax, etc.) Variable Fixed Mixed Administrative costs Variable Fixed Mixed (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. Fixed Costs Variable Costs Cost of food sold Answer Answer X Wages and fringe benefits Answer Answer X Fees paid delivery help Answer Answer X Rent on building Answer Answer X Depreciation on equipment Answer Answer X Utilities Answer Answer X Supplies (soap, floor wax, etc.) Answer Answer X Administrative costs Answer Answer X Total costs equation Answer Answer X * where X = Unit sales (c) Predict total costs for a monthly sales volume of 10,000 units. $Answer
Explanation / Answer
Answer: A
Answer: B
Where: X = unit sales
Answer:C
Total cost= $7600 + $2.33(10000) = $30900
Cost Behaviour Cost of food sold variable Wages and fringe benefits mixed Fees paid delivery help variable Rent on building fixed Depreciation on equipment fixed Utilities mixed Supplies (soap, floor wax, etc.) mixed Administrative costs fixed