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Cost Behavior Analysis in a Restaurant: High-Low Cost EstimationAssume 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 4,200 4,320 4,400 Fees paid delivery help 1,100 1,760 2,200 Rent on building 1,800 1,800 1,800 Depreciation on equipment 700 700 700 Utilities 300 360 400 Supplies (soap, floor wax, etc.) 200 260 300 Administrative costs 1,200 1,200 1,200 Total $19,500 $26,400 $31,000 (a) Identify each cost as being variable, fixed, or mixed. Cost of food sold Answer

Wages and fringe benefits

Answer Fees paid delivery help Answer

Rent on building Answer

Depreciation on equipment Answer

Utilities Answer

Supplies (soap, floor wax, etc.) Answer

Administrative costs Answer

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

(c) Predict total costs for a monthly sales volume of 9,100 units

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Papa John's
Answer b High Low method
Variable cost= (Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)
Cost of goods sold Units Wages and fringe benefits Units Fees paid delivery Units Utilities Units
Highest units                 20,000.00      10,000.00 Highest units        4,400.00 10,000.00 Highest units       2,200.00 10,000.00 Highest units     400.00 10,000.00
Lowest units                 10,000.00        5,000.00 Lowest units        4,200.00     5,000.00 Lowest units       1,100.00     5,000.00 Lowest units     300.00     5,000.00
Difference                 10,000.00        5,000.00 Difference           200.00     5,000.00 Difference       1,100.00     5,000.00 Difference     100.00     5,000.00
Variable cost per unit                           2.00 Variable cost per unit                0.04 Variable cost per unit               0.22 Variable cost per unit          0.02
Fixed cost Highest activity cost- (Highest units * Variable cost per unit) Fixed cost Highest activity cost- (Highest units * Variable cost per unit) Fixed cost Highest activity cost- (Highest units * Variable cost per unit) Fixed cost Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost 20000-(10000*2) Fixed cost 4400-(10000*0.04) Fixed cost 2200-(10000*0.22) Fixed cost 400-(10000*0.02)
Fixed cost                               -   Fixed cost        4,000.00 Fixed cost                    -   Fixed cost     200.00
Answer a Nature
Cost of goods sold Variable
Wages and fringe benefits Mixed
Fees paid delivery Variable
Rent on building Fixed
Depreciation Fixed
Utilities Mixed
Administrative costs Fixed
Fixed Portion Variable Portion
Cost of goods sold                               -                  2.00 A
Wages and fringe benefits                   4,000.00                0.04 B
Fees paid delivery                               -                  0.22 C
Rent on building                   1,800.00                    -  
Depreciation                      700.00                    -  
Utilities                      200.00                0.02 D
Administrative costs                   1,200.00                    -  
Total                   7,900.00                2.28
Answer c Fixed Portion Variable Portion Total
Monthly sales volume               9,100.00 E
Cost of goods sold                               -        18,200.00             18,200.00 F=E*A
Wages and fringe benefits                   4,000.00           364.00               4,364.00 G=E*B
Fees paid delivery                               -          2,002.00               2,002.00 H=E*C
Rent on building                   1,800.00                    -                 1,800.00
Depreciation                      700.00                    -                    700.00
Utilities                      200.00           182.00                  382.00 I=E*D
Administrative costs                   1,200.00                    -                 1,200.00
Total cost of 9100 units                   7,900.00     20,748.00             28,648.00

ekkarill92 answered 2 years ago
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