Question

The manager of the main laboratory facility at MetroFit Center is interested in being able to predict the overhead costs each month for the lab. The manager believes that total overhead varies with the number of lab tests performed but that some costs remain the same each month regardless of the number of lab tests performed The lab manager collected the following data for the first seven months of the year. (Click the icon to view the data.) Use the high-low method to determine the laboratory's cost equation for total laboratory overhead. Use your results to predict total laboratory overhead if 3.000 lab tests are performed next month. Let's begin by determining the formula that is used to calculate the variable cost (slope). Change in cost . Change in volume Variable cost (slope) Now determine the formula that is used to calculate the foxed cost component Total operating cost Total variable cost F ixed cost Use the high-low method to determine MetroFit's operating cost equation (Round the variable cost to the nearest cont.) yos X.$ Use the operating cost equation you determined above to predict total laboratory overhead if 3,000 lab tests are performed next month. The total laboratory overhead at a volume of 3,000 lab tests is $

Answer 1

Change in cost / Change in volume = Variable cost per unit

(Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity) = Variable cost per unit

(27,500-19,500)/(4,000 - 2,000)= Variable cost per unit

8,000/2,000= Variable cost per unit

$4= Variable cost (slope)

Total operating cost -Total variable cost = Fixed cost

Highest activity cost - Highest activity x Variable cost per lab test = Fixed cost

27,500 - 4,000 x 4= Fixed cost

27,500-16,000= Fixed cost

$11,500 = Fixed cost

Operating equation

y = $4x + $11,500

Laboratory cost,If total laboratory overhead 3,000 lab test are performed = Variable cost per test x Activity +Fixed cost

= 4 x 3,000 +11,500

= $23,500

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