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 9,390 January 400 February 6,900 470 March 7,431 500 8,040 April 370 May 9,687 430 June 8,390 340 July 11,850 560 August 7,400 310 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. х 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.

Answer 1

Estimate the costs with High-Low Method Month Employee Hours Labor Cost High level of Activity July 560 11850 low level of Activity August 310 7400 Difference 250 4450 Answers Fixed Cost (11850-(560*17.80) 1882 Per month Varaible cost Per unit (4450/250) 17.80 Per Emploess Hour Total Labor Cost = $1,882+( $ 17.80 * Employee Hours) Variable Cost = Differece in cost / Difference in Hours Fixed cost = Cost-(hours *Variable Cost) Cost Equation = Fixed Cost +Hours * Varaible cost Per hour