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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 ? Unit Costs
1000
Annual Units Sold 6000
Annual Units Sold 8000
Annual Units Sold
Raw Materials
(cost/hamburgers)
Variable cost $.65 $.65 $.65
Building Rent
Fixed cost $9 $1.5 $1.125
Total annual cost must not be confused with unit cost of fixed and variable costs. Table 2 identifies the total annual cost ...