Question

# Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Papa John's restaurant has the...

Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation
Assume a Papa John's restaurant has the following information available regarding costs at representative 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 5,150 5,240 5,300 Fees paid delivery help 1,150 1,840 2,300 Rent on building 1,400 1,400 1,400 Depreciation on equipment 800 800 800 Utilities 700 760 800 Supplies (soap, floor wax, etc.) 250 340 400 Administrative costs 1,200 1,200 1,200 Total \$20,650 \$27,580 \$32,200

(b) Use the high-low method to develop a schedule identifying the amount of each cost that is fixed per month or variable per unit. Total the amounts under each category to develop an equation for total monthly costs.

Round variable cost answers to two decimal places.

Fixed Costs Variable Costs

(c) Predict total costs for a monthly sales volume of 9,400 units.

Working as follows:

 Nature Fixed Variable COGS Variable [10,000/5,000 = 2] Wages and fringe benefits Mixed 5150 - (0.03*5000) = 5000 [(5240 - 5150) ÷ (8000- 5000)] = 0.03 Fees paid delivery help Variable 1150 ÷ 5000 = 0.23 Rent on building Fixed 1400 Depreciation on equipment Fixed 800 Utilities Mixed [700- (0.02*5000)] = 600 [(760 - 700) ÷ (8000 - 5000)] = 0.02 Supplies Mixed [250- (0.03*5000)] = 100 [(340 - 250) ÷ (8000 - 5000)] = 0.03 Administrative costs Fixed 1200 Total 9100 2.31

_________________________________________________

Compute total cost = 9100 + (2.31   9,400 units)

= 9100 + 21714

= \$30814

#### Earn Coins

Coins can be redeemed for fabulous gifts.