Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation (LO2)

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 COSKoOMOOU SOI Rameseese s ce $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 REMUOMMUIGING ai cars wien wcrerc hecs 1,200 1,200 1,200 Depreciation on equipment ......... 600 600 600 IUTETES so Oca One ee 500 560 600 Supplies (soap, floor wax, etc.) ...... 150 180 200 Administrative costs............... 1,300 1,300 1,300 UROVET Seis ecashcat acy clea aa $19,250 $26,240 $30,900 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 fixed per month 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 9,500 units. (p. 66)