Cost Behavior Assume a local pizzeria reported the followingresultsforJune andJu
ID: 2538755 • Letter: C
Question
Cost Behavior Assume a local pizzeria reported the followingresultsforJune andJuly une Jul Unit Sales 4,000 6,000 Rent Depreciation Utilities Supplies Total Cost of Food Sold S 8,000 S 12000 Wages and Salie3,700 4,000 2,0002,000 500 14001,500 300 S 15,800 S 20,300 500 200 Identify each cost as being fixed, variable or mixed Determine the equation for total operating costs Fixed + Unit Variable Cost # of sandwiches Predict the total operating costs for 7000 pizzas 7000 pizzas d. Determine the average costs for Concept question. Why are fixed costs generally not relevant for decision-making? Would average costs be useful for decision-making and why or why not? Concept Question:Explanation / Answer
Req A: Nature Cost of food sold Variable Wages and salaries Mixed Rent Fixed Depreciation Fixed Utilities Mixed Supplies variable Req B: Activity of 7,000 Pizzas Total Cost: Cost of food (7000 @$2) 14000 Wages and salaries 4150 Rent 2000 Depreciation 500 Utilities 1550 Supplies (7000 pizzas @$0.50) 350 Total cost 22550 Req C: Total cost 22550 Number of Pizzas 7000 Average cost per Pizzas 3.22 Concept Question: 1. Fixed cost is generally not relevant in decisison making as it will have to be incurred whether decision taken in favor or against. These are just like sunk cost, which will have to be incurred once facility has been installed. 2. Average cost is not relevant in decision making as in involve the element of fixed cost as well. And the fixed cost is not relevant in decision making as explained above. For decision making purposes, average variable portion of cost is taken.