Frank Company operates a cafeteria for its employees.The number of meals served each week over the last seven weeks, along with the total costs of operating the cafeteria are given below: Assume that the relevant range includes all of the activity levels mentioned in this problem. Assume that the cafeteria expects to serve 1, 850 meals during Week 8.Using the high-low method, the expected total cost of the cafeteria would be:
A)$5, 340
B)$5, 180
C)$5, 300
D)$4, 375

Question

Frank Company operates a cafeteria for its employees.The number of meals served each week over the last seven weeks, along with the total costs of operating the cafeteria are given below:  Assume that the relevant range includes all of the activity levels mentioned in this problem. Assume that the cafeteria expects to serve 1, 850 meals during Week 8.Using the high-low method, the expected total cost of the cafeteria would be:
A)$5, 340 
B)$5, 180 
C)$5, 300 
D)$4, 375

Quizplus · Accepted Answer

Using the high-low method, we need to identify the variable cost per meal and the fixed cost of operating the cafeteria.

To find the variable cost per meal, we can use the two highest and lowest activity levels and their corresponding costs:

Variable cost per meal = (Total cost at highest activity level - Total cost at lowest activity level) / (Number of meals at highest activity level - Number of meals at lowest activity level)

Variable cost per meal = ($5,520 - $4,200) / (2,000 - 1,500)

Variable cost per meal = $1.20

To find the fixed cost, we can use either the highest or lowest activity level:

Total cost = Fixed cost + (Variable cost per meal x Number of meals)

Using the lowest activity level:

$4,200 = Fixed cost + ($1.20 x 1,500)

Fixed cost = $2,700

Using the expected activity level for Week 8 (1,850 meals):

Expected total cost = Fixed cost + (Variable cost per meal x Number of meals)

Expected total cost = $2,700 + ($1.20 x 1,850)

Expected total cost = $5,300

Therefore, the expected total cost of the cafeteria using the high-low method would be $5,300, which is option C.

Frank Company Operates a Cafeteria for Its Employees