Question

Exercise 2.27 Sheridan Company recently opened for business. The owner wants a cost function estimate to help with future planning. The manager feels that last month's results fairly represent costs over the coming six months. Last month 400 pizzas were sold. From the following information, use account analysis to estimate the firm's cost function for pizzas sold. $1,548 Wages for part-time help Pizza toppings Pizza dough Store rent Depreciation on furniture and ovens Napkins, paper plates, cups, and straws Liability insurance Advertising Cleaning supplies Managers' salary Utilities (electricity and telephone) Soft drink purchases 1,520 114 256 Develop a cost function using the data from the accounting records. (Round variable cost per unit to 2 decimal places, e.g. 15.25.) Cost function = $ * Number of pizzas LINK TO TEXT LINK TO TEXT Use the cost function to estimate the total costs if 600 pizzas are expected to be sold next month. Total cost for 600 pizzas

Answer 1

Store rent	421.00
Depreciation on furniture and ovens	80.00
Liability Insurance	99.00
advertising	60.00
Manager's Salary	1,520.00
cleaning supplies	15.00
Utility	114.00
Total Fixed Cost	2,309.00

Wages for Part time helpd	1,548.00
pizza toppings	120.00
pizza dough	152.00
napkins,paper plates,cups and straws	60.00
Softdrinks	256.00
Total Variable cost	2,136.00
Variable cost per pizza	5.34

Cost equation =2,309 + 5.34 x Number of pizzas

b)Total cost for 600 pizzas = 2,309 + (5.34 x 600)

=5,513