Question

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.)

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