Question

In: Accounting

John Smith is requesting your assistance in determining a cost equation for forecasting his expenses for...

John Smith is requesting your assistance in determining a cost equation for forecasting his expenses for his ABC restaurant. He provides costs at two extremes as follows:

Monthly Covers

1000

3000

Salaries

$   15,000

$   15,000

Wages

$     5,000

$   15,000

Employee benefits

$     4,000

$     6,000

Supplies

$     2,000

$     6,000

Utilities

$     5,000

$     8,000

Rent

$     8,000

$     8,000

Operating expenses

$     1,500

$     4,500

Insurance

$     1,000

$     1,000

Please use the table above to answer the question 37 to 40

37.

What costs are the mixed cost?

Group of answer choices

a. Salaries, Wage, and Supplies

b. Employee benefits and Supplies

c. Utilities, Rent, and Insurance

d. Employee benefits and Utilities

38.

What is the total fixed cost for ABC restaurant?

Group of answer choices

a. $30,000

b. $35,000

c. $30,500

d. $35,500

39.

What is the total variable cost per unit for ABC restaurant?

Group of answer choices

a. $11.00

b. $10.50

c. $12.00

d. $9.00

40.

If the restaurant 2,000 covers, what is the total cost?

Group of answer choices

a. $50,000

b. $50,500

c. $52,500

d. $55,000

Solutions

Expert Solution

37) Correct Option: D i.e. Employee Benefit and Utilities
38) Correct Option C i.e. $30500 (See Note 1)
39) Correct Option A i.e. $11 See Note 4
40) Correct Option C i.e. $52500 See Note 5
Note 1: Foxed cost calculation
Salaries      15,000
Rent        8,000
Insurance        1,000
Fixed portion of Employee benefit        3,000 (see note 3 below)
Fixed portion of Utilities        3,500 (see note 3 below)
Total Fixed cost            30,500
Note: Cost which remains constant at both level of activity are fixed cost. Cost which increase in same proportion (3 times) are variable and all cost other than foxed and variable is called Mixed cost.
Note2 : Overall summary
Monthly Covers Type of Cost
Qty        1,000        3,000
Salaries $   15,000 $   15,000 Fixed
Wages $     5,000 $   15,000 Variable
Employee benefits $     4,000 $     6,000 Mixed
Supplies $     2,000 $     6,000 Variable
Utilities $     5,000 $     8,000 Mixed
Rent $     8,000 $     8,000 Fixed
Operating expenses $     1,500 $     4,500 Variable
Insurance $     1,000 $     1,000 Fixed
Note 3:
Calculate fixed and variable portion of mixed cost
Low Level High level Change Variable cost per unit= (Change in cost / Change in activity) Total variable cost at lower level Fixe cost = Total cost at low level - variable cost at low level
Level of activity 1000 3000 2000
Employee benefits 4000 6000 2000 1 1000 3000
Utilities 5000 8000 3000 1.5 1500 3500
Note 4 Variable cost per unit
Wages 5,000
Supplies 2,000
Operating expenses 1,500
Total 8,500
Divided by units 1,000
Variable cost per unit 8.5
Add per unit :
Portion of Employee benefit 1 (see note 3)
Portion of Utilities 1.5 (see note 3)
Total variable cost per unit 11
Note 5 : Total cost for 200 covers

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