Question

Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a Time Period that Differs from the Data Period

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

Month		Labor Cost			Employee Hours
January		$7,000			360
February		8,140			550
March		9,899			630
April		9,787			610
May		8,490			480
June		7,450			350
July		9,490			570
August		7,531			310

Assume that this information was used to construct the following formula for monthly labor cost.

Total Labor Cost = $5,237 + ($7.40 x Employee Hours)

Required:

Assume that 4,000 employee hours are budgeted for the coming year. Use the total labor cost formula to make the following calculations:

1. Calculate total variable labor cost for the coming year.
$

2. Calculate total fixed labor cost for the coming year.
$

3. Calculate total labor cost for the coming year.
$

Answer 1

Estimate the costs with High-Low Method Month Employee Hours Labor Cost High level of Activity March 630 low level of Activity August 310 Difference 320 9899 7531 2368 5237 Per month 7.40 Per Emploess Hour Fixed Cost (9899-(7.40*630) Varaible cost Per unit (2368/320) Answers Total Variable Cost (4000*7.40) Total Fixed cost (5237*12) Total Labor cost 29600 62844 92444 Variable Cost = Differece in cost / Difference in Hours Fixed cost = Cost-(hours *Variable Cost) Cost Equation = Fixed Cost +Hours * Varaible cost Per hour