Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Potbel
ID: 2556687 • Letter: C
Question
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation
Assume a
Potbelly’s restaurant has the following information available regarding costs at representa-
tive 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 ............................4,2004,3204,400
Fees paid delivery help...............................1,100 1,760 2,200
Rent on building ....................................1,100 1,100 1,100
Depreciation on equipment ...........................900900900
Utilities ...........................................8009201,000
Supplies (soap, floor wax, etc.) ........................250340400
Administrative costs.................................1,700
1,700 1,700
Total .............................................$20,050$27,040 $31,700
Required
a. Identify each cost as being variable, fixed, or mixed.
b. Use the high-low method to develop a schedule identifying the amount of each cost that is mixed or
variable per unit. Total the amounts under each category to develop an equation for total monthly
costs.
c. Predict total costs for a monthly sales volume of 9,800 units
Explanation / Answer
Req a: Identification of Cost Items of cost Nature 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 Mixed Admin Cost Fixed Req b: Mixed Cost: Wages and fringe Benefits: Variable Cost per unit: Change in Cost / Change in units =(4400-4200)/(10000-5000) = $0.04 per unit Fixed Cost = 4400 - 10000*0.04 = 4000 Utilities: Variable cost per unit: Change in cost/ Change in Units =(1000-800) /(10000-5000)= 0.04 per unit Fixed Cost = 1000 -10,000*0.04 = 600 Supplies: Variable cost = Change in cost/ change in Units = (400-250)/( 10000-50000) = 0.03 per unit Fixed cost = 400 - 10000*.03 = 100 Variable Cost: Cost of Food sold:(20,000 /10000) = $2 per unit Fees Paid delivery help: (2200/10000)= $ 0.22 per unit Total Variable Cost: Cost of Food supply: 2 Fees paid for delivery help 0.22 Supplies 0.03 Utilties 0.04 Wages and fringe benefits 0.04 Total variable cost per unit 2.33 Total Fixed Cost: Wages and fringe benfits 4000 Utilities 600 Supplies 100 Rent on building 1100 Depreciation 900 Admin cost 1700 Total Fixed Cost: 8400 Monthly cost = Fixed Cost + variable cost per unit* Units Sold Let C= Total cost X = Number of UNIts Sales C = 8400 + 2.33 X Req 3: Number of Units sold: 9800 units Total Cost = 8400 + 2.33 *9800 = $ 31234