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Barney's Pizza Parlour recently opened for business. The owner wants a cost function estimate to...

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Accounting

Barney's Pizza Parlour 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 600 pizzas were sold. From the following information, use account analysis to estimate the firm's cost function for pizzas sold.

Wages for part-time help

$2,340

Pizza toppings

180

Pizza dough

240

Store rent

400

Depreciation on furniture and ovens

80

Napkins, paper plates, cups, and straws

75

Liability insurance

100

Advertising

60

Cleaning supplies

15

Manager's salary

1,400

Utilities (electricity and telephone)

110

Soft drink purchases

375

A.Develop a cost function using the data from the accounting records.

B.Use the cost function to estimate the total costs if 700 pizzas are expected to be sold next month.

C.What assumptions do you make when you estimate this cost function? List two factors that could cause the assumption for variable costs to be incorrect next month.

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