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 9,590 550 February 7,100 630 March 7,631 670 April 8,240 500 May 9,887 590 June 8,590 460 July 13,380 760 August 7,600 420 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. $ -23,335.7

Answer 1

Variable cost = (Cost at highest activity - Cost at lowest activity) /(Highest activity-Lowest activity)

= (13380-7600)/(760-420)

= 17 per hour

Fixed cost = Total cost - Total Variable cost

= 13380 - (17*760)

= 460