Question

1. A restaurant has the following quarterly record of revenue and employee wage costs. Using the maximum/minimum (high-low) method, determine (A.) the quarterly fixed wage cost,(B.) total fixed wage cost for a year, (C.) total variable wage cost for a year, and (D.) the variable cost percentage. Show your work and answers

	Revenue	Wage Costs
1st Q	33,000	13,500
2nd Q	50,500	20,300
3rd Q	58,000	21,800
4th Q	45,500	18,200
Sum	187,000	73,800

Answer 1

Solution: (A.) Variable cost = (Highest activity cost - Lower activity cost) / (Highest activity units - Lower activity units)

= (21,800 - 13,500) / (58,000 - 33,000)

= 8,300 / 25,000 = 0.332

Quarterly Fixed Cost = Total cost - Variable Cost

= 13,500 - 33,000 * 0.332

= 13,500 - 10,956 = 2,544

(B.) Total fixed wage cost for a year = Quarterly fixed cost * 4

= 2,544 * 4 = 10,176

(C.) Total variable wage cost for a year = Total wage cost - Total fixed cost

= 73,800 - 10,176 = 63,624

(D.) Variable cost percentage = Variable cost / Total cost * 100

= 63,624 / 73,800 *100 = 86.21%

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