Question

Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation
Assume a Jimmy 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	4,250	4,400	4,500
Fees paid delivery help	1,250	2,000	2,500
Rent on building	1,200	1,200	1,200
Depreciation on equipment	600	600	600
Utilities	500	560	600
Supplies (soap, floor wax, etc.)	150	180	200
Administrative costs	1,300	1,300	1,300
Total	$ 19,250	$ 26,240	$ 30,900

(a) Identify each cost as being variable, fixed, or mixed.

Cost of food sold:

Variable

Fixed

Mixed

Wages and fringe benefits:

Variable

Fixed

Mixed

Fees paid delivery help:

Variable

Fixed

Mixed

Rent on building:

Variable

Fixed

Mixed

Depreciation on equipment:

Variable

Fixed

Mixed

Utilities

Variable

Fixed

Mixed

Supplies (soap, floor wax, etc.):

Variable

Fixed

Mixed

Administrative costs:

Variable

Fixed

Mixed

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

* where X = Unit sales

(c) Predict total costs for a monthly sales volume of 10,000 units.
$Answer

Answer 1

Part a
	Cost details	Variable/Fixed/Mixed
	Cost of foods sold	Variable
	Wages and Fringe benefits	Mixed
	Fees paid delivery help	Variable
	Rent on building	Fixed
	Depreciation on equipment	Fixed
	Utilities	Mixed
	Supplies(soap, floor wax etc.)	Mixed
	Administrative Costs	Fixed
Part b	Cost details	Fixed Costs	Variable Costs per unit
	Cost of foods sold	0	$                                  2.00
	Wages and Fringe benefits	$                                4,000	$                                  0.05
	Fees paid delivery help	0	$                                  0.25
	Rent on building	$                                1,200	0
	Depreciation on equipment	$                                   600	0
	Utilities	$                                   400	$                                  0.02
	Supplies(soap, floor wax etc.)	$                                   100	$                                  0.01
	Administrative Costs	$                                1,300	$                                     -
	Toatl	$                                7,600	$                                  2.33
Part c
	So the equation will be :$2.33X + $7,600
	Total Cost at 10,000 units will be:
	$2.33*10,000 + $7,600 =$30,900