Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation

Assume a

Potbellys restaurant has the following information available regarding costs at representa-

tive levels of monthly sales:

Monthly sales in units

5,000 8,000 10,000

Cost of food sold ...................................$10,000$16,000$20,000

Wages and fringe benefits ............................4,2004,3204,400

Fees paid delivery help...............................1,100 1,760 2,200

Rent on building ....................................1,100 1,100 1,100

Depreciation on equipment ...........................900900900

Utilities ...........................................8009201,000

Supplies (soap, floor wax, etc.) ........................250340400

Administrative costs.................................1,700

1,700 1,700

Total .............................................$20,050$27,040 $31,700

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 mixed 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 9,800 units