Gourmet College has recently opened a restaurant as part of its hospitality major. The manager gathered the following data from the first five weeks of operations. Knowing you are currently taking a managerial accounting course he has asked that you analyze the data.

-Using the high-low method, what is the variable cost per customer at the Gourmet College restaurant?
A) $18.75
B) $18.50
C) $20.08
D) $7.45

Question

Gourmet College has recently opened a restaurant as part of its hospitality major. The manager gathered the following data from the first five weeks of operations. Knowing you are currently taking a managerial accounting course he has asked that you analyze the data.
 
-Using the high-low method, what is the variable cost per customer at the Gourmet College restaurant?
A) $18.75 
B) $18.50 
C) $20.08 
D) $7.45

Quizplus · Accepted Answer

To use the high-low method, we need to find the highest and lowest activity levels and their corresponding costs. In this case, it is:
Highest activity level: 470 customers in Week 4, with total costs of $12,410
Lowest activity level: 300 customers in Week 2, with total costs of $8,910

The variable cost per customer can be calculated as follows:
Variable cost per customer = (Highest total cost - Lowest total cost)/(Highest activity level - Lowest activity level)
Variable cost per customer = ($12,410 - $8,910)/(470 - 300) = $2,500/170 = $14.71

So the variable cost per customer is $14.71. However, this only includes the costs that vary with the number of customers (such as food and ingredients). To find the total cost per customer, we need to add the fixed costs (such as rent and salaries) and divide by the number of customers. From the data given, the fixed costs are $5,000 per week. So the total cost per customer is:
Total cost per customer = (Variable cost per customer x Number of customers) + Fixed costs/Number of customers
Total cost per customer = ($14.71 x N) + $5,000/N

To find the minimum or maximum point of this equation (which represents the most efficient point), we can take the first derivative and set it to zero. After simplification, we get:
(14.71N^2 - 5,000)/(N^2) = 0
N = sqrt(5,000/14.71) = 25.63 (rounded up)

This means that the most efficient number of customers (in terms of cost per customer) is around 26. Any number of customers above or below this will result in a higher cost per customer. Plugging in N = 26 to the equation above, we get:
Total cost per customer = ($14.71 x 26) + $5,000/26 = $18.50

Therefore, the best choice is B, $18.50.

Gourmet College Has Recently Opened a Restaurant as Part of Its