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 first need to find the variable cost per meal:

Variable cost per meal = (Cost at highest activity level - Cost at lowest activity level) / (Meals at highest activity level - Meals at lowest activity level)
Variable cost per meal = ($5,680 - $4,530) / (2,000 - 1,300)
Variable cost per meal = $1.15

Next, we can use this variable cost per meal to find the fixed cost:

Fixed cost = Total cost - (Variable cost per meal * Total meals)
Fixed cost = $4,530 - ($1.15 * 1,500)
Fixed cost = $4,530 - $1,725
Fixed cost = $2,805

Finally, we can use the fixed and variable costs to estimate the total cost for Week 8, when the cafeteria expects to serve 1,850 meals:

Total cost = Fixed cost + (Variable cost per meal * Number of meals)
Total cost = $2,805 + ($1.15 * 1,850)
Total cost = $2,805 + $2,127.50
Total cost = $5,300

Therefore, the expected total cost of the cafeteria for Week 8 using the high-low method would be $5,300. The best choice is C.

Frank Company Operates a Cafeteria for Its Employees