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Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Potbelly's restaurant has the following information available regarding costs at representative levels of monthly
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Potbelly's restaurant has the following information available regarding costs at representative levels of monthly sales (meals served): 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 Monthly sales in units 5,000 7,000 10,000 $ 7,500 $10,500 $15,000 5,900 5,940 6,000 6,000 8,400 12,000 3,500 3,500 3,500 850 850 850 600 640 700 400 480 600 1,200 1,200 1,200 $25,950 $31,510 $39,850 Total (a) Identify each cost as being variable, fixed, or mixed. 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 (soap, floor wax, etc.) Mixed Administrative costs Fixed (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. Round variable cost answers to two decimal places. Fixed Costs Variable Costs $ 0 $ 0 x x 0 x 0 Oxx Cost of food sold Wages and fringe benefits Fees paid delivery help Rent on building Depreciation on equipment Utilities 0 x 0 x 0 x OX 0 x 400 480 600 Supplies (soap, floor wax, etc.) Administrative costs 1,200 1,200 1,200 $25,950 $31,510 $39,850 Total (a) Identify each cost as being variable, fixed, or mixed. 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 (soap, floor wax, etc.) Mixed Administrative costs Fixed (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. Round variable cost answers to two decimal places. Fixed Costs Variable Costs Cost of food sold $ 0 $ Oxx 0 x 0 x x 0 Oxx 0 x 0 x Wages and fringe benefits Fees paid delivery help Rent on building Depreciation on equipment Utilities Supplies (soap, floor wax, etc.) Administrative costs 0 x OX 0 x 0 x x 0 x 0 x x 0 x 0 X Total costs equation $ 0 x $ 0 X X * where X = Unit sales (C) Predict total costs for a monthly sales volume of 8,500 units. $ 0
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