Question

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 9,490 570 February 7,000 660 March 7,531 700 April 8,140 May 9,787 620 480 June 8,490 July 13,520 790 August 7,500 440 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. X per employee hour 3. Using the high-low method, construct the cost formula for total labor cost. Total labor cost = $ x + ($ x x Employee hours) Check My Work 2 more Check My Work uses remaining. ( Pre All work saved. Save and Exit Submit

Answer 1

Solution 1&2:

Variable cost per employee hour = (Cost at high level - Cost at low level) / (High level activity - Low level activity)

= ($13,520 - $7,500) / (790 - 440) = $17.20 per employee hour

Fixed cost of labor = $13,520 - (790*$17.20) = -$68

Solution 3:

Total labor cost = -$68 + $17.20 * Employee hours