4 Assume a restaurant has the following information availabl

4. Assume a 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 Wages and fringe benefits Rent on build Depreciation on equipment Utilities 4,400 4,250 1,200 600 500 4,500 1,200 600 500 600 560 other costs( Total Identify each cost as being variable, fixed, or mixed. Cost of food sold- variable Wages and fringe benefits-variable Rent on building fixed Depreciation on equipment-fixed Utilities-mixed Other costs mixed a. b. For each of the different cost elements (cost of food sold, etc.) and the total cost, use the high- low method to develop a cost estimating equation. (Hint: for a quick self-check, make sure the sum of the fixed cost component for each of the different cost elements total to the fixed cost component of the equation for total cost, and the sum of the per-unit variable costs for each of the different cost elements total to the per-unit variable cost in the total cost equation) Use your total cost equation from part (b) to predict total costs for a monthly sales volume of 7,500 units. c. d. If the restaurant sells 100 more units, how much would their costs increase?

Solution

(a) Identify each cost as being variable, fixed, or mixed.

Other Costs (untabulated)

7600 + 2.33 * X

7600 + 2.33*7500

Total Cost 25,075

Total Cost 25,075

Mixed

Cost of food sold	Variable
Wages and fringe benefits	Mixed
Rent on building	Fixed
Depreciation on equipment	Fixed
Utilities	Mixed
Other Costs (untabulated) (b) Use the high-low method Type of cost Fixed Cost Per Unit Variable Cost Per Unit Cost of food sold Variable 0 $2 Wages and fringe benefits Mixed 4000 0.05 Rent on building Fixed 1200 0 Depreciation on equipment Fixed 600 0 Utilities Mixed 400 0.02 Other Costs (untabulated) Mixed 1400 0.26 Total 7600 2.33 Cost Formula 7600 + 2.33 *X Wages and fringe benefits High Low Method Difference in Total cost Difference In   Units Produced 4500 - 4250 10000 - 5000                                                250                                             5,000 Variable Cost component                                                0.05 Per Unit Produced Determine the fixed cost component using the high-low method Number of   Units Produced                                           10,000                       5,000 Total Cost 4500 4250 Less Variable component                                                 500                          250 Fixed component                                             4,000                       4,000 Utilities 600 - 500 10000 - 5000 100 5,000 Variable Cost component 0.02 Per Unit Produced Determine the fixed cost component using the high-low method Number of   Units Produced                                           10,000                       5,000 Total Cost 600 500 Less Variable component                                                 200                          100 Fixed component                                                 400                          400 Other Costs (untabulated) 4000 - 2700 10000 - 5000 1,300 5,000 Variable Cost component = 0.26 Per Unit Produced Determine the fixed cost component using the high-low method Number of   Units Produced                                           10,000                       5,000 Total Cost        4000 2700 Less Variable component                                             2,600                       1,300 Fixed component                                             1,400                       1,400 (c) Predict total costs for a monthly sales volume of 7,500 units. Cost Formula 7600 + 2.33 * X 7600 + 2.33*7500 Total Cost 25,075 d) Cost Formula 7600 + 2.33 *X 7600 + 2.33 *7600 Total Cost 25,075	Mixed