Question

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
Cost of food sold	Answer	Answer
Wages and fringe benefits	Answer	Answer
Fees paid delivery help	Answer	Answer
Rent on building	Answer	Answer
Depreciation on equipment	Answer	Answer
Utilities	Answer	Answer
Supplies (soap, floor wax, etc.)	Answer	Answer
Administrative costs	Answer	Answer
Total costs equation	Answer	Answer

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

Answer 1

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