Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a T

Question

Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a Time Period that Differs from the Data Period

Pizza Vesuvio makes specialty pizzas. Data for the past 8 months were collected:

Assume that this information was used to construct the following formula for monthly labor cost.

Required:

Assume that 4,000 employee hours are budgeted for the coming year. Use the total labor cost formula to make the following calculations:

1. Calculate total variable labor cost for the coming year.
$

2. Calculate total fixed labor cost for the coming year.
$

3. Calculate total labor cost for the coming year.

Month Labor Cost Employee Hours January $7,000   360 February 8,140 550 March 9,899 630 April 9,787 610 May 8,490 480 June 7,450 350 July 9,490 570 August 7,531 310

Explanation / Answer

Answer:

1. Calculate total variable labor cost for the coming year.

variable labor

= $7.40 x Employee Hours

=7.40x4000

=29600

variable labor=$29600

___________________________________________________________

2. Calculate total fixed labor cost for the coming year.

fixed labor=$5237

__________________________________________________________

3. Calculate total labor cost for the coming year.

Total Labor Cost

= $5,237 + ($7.40 x Employee Hours)

=5237 +7.40*4000

=5237+29600

=34837

Total Labor Cost=$34,837

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