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:

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)
= (10,825-8,125) / (1,600-1,100)
= $2.50 per meal

Fixed cost = Total cost at highest activity level - (Variable cost per meal × Number of meals at highest activity level)
= 10,825 - (2.5 × 1,600)
= $6,225

Expected total cost at activity level of 1,850 meals:

Total cost = Fixed cost + (Variable cost per meal × Number of meals)
= 6,225 + (2.5 × 1,850)
= $10,350

Therefore, the expected total cost of the cafeteria would be $5,300 (Option C).

Frank Company Operates a Cafeteria for Its Employees