Question

Total costs at a restaurant are listed below: Customers Served Total Cost March 11,649 $ 26,575...

Total costs at a restaurant are listed below:

Customers Served Total Cost
March 11,649 $ 26,575
April 11,445 $ 26,438
May 11,977 $ 26,795
June 12,200 $ 26,944
July 11,709 $ 26,615
August 11,195 $ 26,271
September 11,989 $ 26,803
October 11,680 $ 26,596
November 11,828 $ 26,695

The restaurant's total cost is a mixed cost that depends on customers served. The restaurant's management uses the high-low method to estimate the variable and fixed components of this cost. If the management believes that the restaurant will be able to serve 16,000 customers in December, the restaurant's estimated total cost for December is closest to: (Round your intermediate calculations to 2 decimal places.)

Homework Answers

Answer #1

Variable cost per customer served = (Highest activity cost – Lowest activity cost)/(Highest activity customer served - Lowest activity customer served)

= (26,944 - 26,271)/(12,200 - 11,195)

= 673/1,005

= $0.67

Fixed cost = Highest activity cost – (Variable cost per customer served x Highest activity customer served)

= 26,944 - (0.67 x 12,200)

= 26,944 - 8,174

= $18,770

Total cost when 16,000 customers are served = Fixed cost + (Variable cost per customer served x 16,000)

= 18,770 + (0.67 x 16,000)

= 18,770 + 10,720

= $29,490

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