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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
Solutions
Expert Solution
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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 | |
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