Question

Chapter 3 Homework eBook Calculator High-Low Method, Cost Formulas The controller of the South Charleston plant of Ravinia, Inc., monitored activities associated with materials handling costs. The high and low levels of resource usage occurred in September and March for three different resources associated with materials handling. The number of moves is the driver. The total costs of the three resources and the activity output, as measured by moves for the two different levels, are presented as follows: Resource Number of Moves Total Cost Forklift depreciation: Low 6,500 20,000 $ 1,800 1,800 High Indirect labor: Low 6,500 20,000 $ 74,250 135,000 High Fuel and oil for forklift: Low 6,500 $ 4,940 15,200 High 20,000 Required: If required, round your answers to two decimal places. Enter a "0" if required. 1. Determine the cost behavior formula of each resource. Use the high-low method to assess the fixed and variable components. Forklift depreciation: V $

Answer 1

1
a.	Forklift Depreciation Cost
		No. of Moves	Total Cost
	High level of activity	20,000	$1,800
	Low level of activity	6,500	$1,800
	Change	13,500	$0
	Variable cost per move =$0
	Fixed cost element =$1,800
	Y =$1,800
b	Indirect Labor Cost
		No. of Moves	Total Cost
	High level of activity	20,000	$1,35,000
	Low level of activity	6,500	$74,250
	Change	13,500	$60,750
	Variable cost per move =$60,750 / 13,500 =$4.50
	Fixed cost element =$135,000 - (20,000 moves*$4.50) =$45,000
	Y =$45,000 + $4.50x
c	Fuel and oil for forklift cost
		No. of Moves	Total Cost
	High level of activity	20,000	$15,200
	Low level of activity	6,500	$4,940
	Change	13,500	$10,260
	Variable cost per move =$10,260 / 13,500 =$0.76
	Fixed cost element =$15,200 - (20,000 moves*$0.76) =$0
	Y = $0.76x
2	Cost of each item at 9,000 moves
	Forklift Depreciation	$1,800
	Indirect labor($45,000 + $4.50*9,000)	$85,500
	Fuel and oil for forklift($0.76*9,000)	$6,840
3
	Material Handling Cost
		No. of Moves	Total Cost(Note)
	High level of activity	20,000	$1,52,000
	Low level of activity	6,500	$80,990
	Change	13,500	$71,010
	Variable cost per move =$71,010 / 13,500 =$5.26
	Fixed cost element =$152,000 - (20,000 moves*$5.26) =$46,800
	Y =$46,800 + $5.26x
	Y at 9,000 moves =$46,800+$5.26*9,000 =$94,140
	Note:
	High level of activity cost =$1,800 + $135,000 + $15,200 =$152,000
	Low level of activity cost =$1,800 + $74,250 + $4,940 =$80,990