Question

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 $16,000 520,000 Wages and fringe benefits 4200 4.320 4,400 Fees paid delivery help 1.100 1.760 2200 Rent on building 1.100 1.100 1.100 Depreciation on equipment 900 900 900 Utilities 800 920 1,000 Supplies (soap, floor wax, etc.) 250 340 400 Administrative costs 1.700 1.700 Total $20.050 $27.040 $31.700 1.700 (a) Identify each cost as being variable, fixed, or mixed. Cost of food sold Variable Wages and fringe benefits Mixed

Answer 1

a)The identification of variable, fixed or mixed cost is as follows:

	Variable, fixed or mixed cost
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

b) The total cost for a monthly sale volume of 9,800 units are as follows:

	Fixed	Variable	Total
Monthly sales volume			9,800 units
Cost of goods sold	-	19,600	$19,600
		(9,800 * $2)
Wages and fringe benefits	5,000	294	$5,294
		(9,800 units * 0.03)
Fees paid delivery	-	2,254	$2,254
		(9,800 units * 0.23)
Rent on building	1,400	-	$1,400
Depreciation on Equipment	800	-	$800
Utilities	600	196	$796
		(9,800 units * 0.02)
Supplies	100	294	$394
		(9,800 units * 0.03)
Administrative costs	1,200		$1,200
Total cost for 9,800 units			$31,738