Question

Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation

Assume a

Potbelly’s restaurant has the following information available regarding costs at representa-

tive 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 ............................4,2004,3204,400

Fees paid delivery help...............................1,100 1,760 2,200

Rent on building ....................................1,100 1,100 1,100

Depreciation on equipment ...........................900900900

Utilities ...........................................8009201,000

Supplies (soap, floor wax, etc.) ........................250340400

Administrative costs.................................1,700

1,700 1,700

Total .............................................$20,050$27,040 $31,700

Required

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

b. Use the high-low method to develop a schedule identifying the amount of each cost that is mixed or

variable per unit. Total the amounts under each category to develop an equation for total monthly

costs.

c. Predict total costs for a monthly sales volume of 9,800 units

Answer 1

Req a:
Identification of Cost
Items of cost				Nature
Cost of food sold				Variable
Wages and fringe benefits				Mixed
Fees paid delivery help				variable
Rent on building				Fixed
Depreciation on Equipment				Fixed
Utilities				Mixed
Supplies				Mixed
Admin Cost				Fixed
Req b:
Mixed Cost:
Wages and fringe Benefits:
Variable Cost per unit: Change in Cost / Change in units =(4400-4200)/(10000-5000) = $0.04 per unit
Fixed Cost = 4400 - 10000*0.04 = 4000
Utilities:
Variable cost per unit: Change in cost/ Change in Units =(1000-800) /(10000-5000)= 0.04 per unit
Fixed Cost = 1000 -10,000*0.04 = 600
Supplies:
Variable cost = Change in cost/ change in Units = (400-250)/( 10000-50000) = 0.03 per unit
Fixed cost = 400 - 10000*.03 = 100
Variable Cost:
Cost of Food sold:(20,000 /10000) = $2 per unit
Fees Paid delivery help: (2200/10000)= $ 0.22 per unit
Total Variable Cost:
Cost of Food supply:			2
Fees paid for delivery help			0.22
Supplies			0.03
Utilties			0.04
Wages and fringe benefits			0.04
Total variable cost per unit			2.33
Total Fixed Cost:
Wages and fringe benfits			4000
Utilities			600
Supplies			100
Rent on building			1100
Depreciation			900
Admin cost			1700
Total Fixed Cost:			8400
Monthly cost = Fixed Cost + variable cost per unit* Units Sold
Let C= Total cost
X = Number of UNIts Sales
C = 8400 + 2.33 X
Req 3:
Number of Units sold: 9800 units
Total Cost = 8400 + 2.33 *9800 = $ 31234