Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
The fixed cost of running the restaurant is the cost that is not immediately affected by
changes in the number of hamburgers sold. The fixed cost here is the building rent. The
variable cost is the raw materials because there is a direct correlation between the total
annual costs and the units sold. This is based on the assumption the costs are totally fixed
and totally variable and the relationship between the cost and cost-driver is linear and
within the relevant range (Horngren, Sundem, Stratton, 2005, p. 48).
Table 1 distinguishes the unit costs and displays a different perspective. The unit cost of a
hamburger is determined by dividing the total annual cost ($650) by the total annual units
sold (1000). The variable unit cost is $.65 no matter how many are sold. However, the
fixed unit cost decreases correlate with the total annual number of units sold. To calculate
the unit cost of the fixed variable (building rent), divide the total fixed cost ($9000) by the
total number produced (1000). The fixed unit cost when 1000 units are sold is $9 (9000 /
1000 = 9), but it changes to $1.125 when 8000 hamburgers are sold (9000 / 8000 = 1.125).
Table 1
