Although only open for one year, Pizzeria Paradise has established a reputation as serving excellent deep-dish pizza and recently won a Best of City award.

Although only open for one year, Pizzeria Paradise has established a reputation as serving excellent deep-dish pizza and recently won a “Best of City” award. Management is interested in using the data from the first year of operations to estimate the firm’s cost structure. To this end, they have provided you with the following data for the first four quarters of operations:

Required:
a. Use the high-low method to estimate Pizzeria Paradise’s quarterly cost equation (i.e., use the high-low method to estimate Pizzeria Paradise’s quarterly fixed costs and variable cost per pizza).
b. How would you interpret the estimate of fixed costs if it were below zero?
c. Use the cost equation you developed in part (a) to predict Pizzeria Paradise’s total quarterly costs for a volume of 50,000 pizzas. How confident are you in your estimate of total quarterlycosts?

uarter First Second Third Fourth Quaer Number of Pizas Sold Total Costs $115.000 $150,000 $175,000 $190,000 25,000 30,000 35,000 40,000