Answered: Using High-Low to Calculate Fixed Cost,…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter3: Cost Behavior And Cost Forecasting

Section: Chapter Questions

Problem 19BEA: Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a Time Period That...

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Using High-Low to Calculate Fixed Cost, Calculate the Variable Rate, and Construct a Cost Function

Pizza Vesuvio makes specialty pizzas. Data for the past 8 months were collected:

Month	Labor Cost($)	Employee Hours
	January		9,490	550
	February		7,000	630
	March		7,531	670
	April		8,140	500
	May		9,787	590
	June		8,490	460
	July		12,872	760
	August		7,500	420

Pizza Vesuvio's controller wants to calculate the fixed and variable costs associated with labor used in the restaurant.

In your calculations, round the variable rate per employee hour to the nearest cent. If required, round your final answers to the nearest cent.

Required:

1. Using the high-low method, calculate the fixed cost of labor.
$________

2. Using the high-low method, calculate the variable rate.
$_________

3. Using the high-low method, construct the cost formula for total labor cost.

Total labor cost = $ _______ + ($__________ × Employee hours)

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