Question

The Outback Steakhouse Restaurants offer steak, chicken, and seafood served in an Australian-themed atmosphere. Maintaining a clean environment for customers is a key success factor. Each restaurant is cleaned regularly after closing. In addition, the restaurant is deep cleaned 4 to 10 times per month, depending on various factors including the amount of business. During the deep cleaning a special treatment is given to the floors consisting of breaking down the wax and rewaxing. The two most costly resources needed to clean the floor are labor and supplies. The cost driver for both labor and supplies is square feet cleaned. Cleaning laborers are paid the same salary regardless of the number of times a restaurant is cleaned. Cleaning supplies used per square foot for closing and deep cleaning are about the same. Suppose one of the local Outback Restaurants has 4,000 square feet. In October, the restaurant was cleaned 35 times, at a total cost of $26,400. In November, the restaurant was cleaned 38 times for a total cost of $27,129. The month of December is typically much busier than October and November, so the restaurant manager expects to clean 45 times in December. Required: Use the high low method to answer the following questions Show your calculations for each questions. 1. What is the total amount of fixed costs? 2. What is the variable cost per unit? 3. What would be the total costs if the restaurant was cleaned 50 times in December? 4. Suppose Outback can hire an outside cleaning company to clean the restaurant as needed. The charge rate for cleaning is $.17 per square foot. If the outside cleaning company is hired, Outback can lay off the workers who are now cleaning and spend nothing on cleaning supplies. Will Outback save money with the outside cleaning company during December? 5. How many times would the Tacoma restaurant be cleaned for the manager to be indifferent as to using its own in-house cleaner's verses an outside cleaning company? (rounded to the next highest number) Hint: Set the in-house cost of cleaning equal to the outside cleaning cost at "x" times of cleaning.

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

The Outback restaurant
	High Low method
Variable cost=	(Highest activity cost- Lowest activity cost)/ (Highest activity units- Lowest activity units)
	Cost	Number of times cleaned
Highest activity	27,129.00	38.00
Lowest activity	26,400.00	35.00
Difference	729.00	3.00
Variable cost per time	243.00		Answer 1
Fixed cost	Highest activity cost- (Highest units * Variable cost per unit)
Fixed cost	27,129-(38*243)
Fixed cost	17,895.00		Answer 2
Answer 3	Amount $
Number of times cleaned in December	50.00
Variable cost per time	243.00
Total Variable cost	12,150.00
Fixed cost	17,895.00
Total cost	30,045.00
Answer 4
Number of times cleaned in December	50.00
Square feet cleaned	4,000.00
Total Square feet cleaned	200,000.00
Rate per feet	0.17
Cost of outside service	34,000.00
Decision
Cost of outside service	34,000.00
Total cost if cleaned in house	30,045.00
Loss	3,955.00
Restaurant will lose $ 3,955 if it hires outside help. So it should not hire outside help and should do in-house cleaning.
Answer 5
Let number of times be X.
Cost of in house cleaning	243X+ $ 17,895.
Cost of outside service	0.17*X*4000
As per question both should be same. So,
243X+ $ 17,895=	0.17*X*4000
243X+ $ 17,895=	680X
680X-243X=	17,895.00
437X=	17,895.00
X	40.95
So X= 41.
So, if cleaning will be done 51 times then cost in both the cases will be same.