Using HighLow 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:
Month  Labor Cost  Employee Hours  
January  $7,100  340  
February  9,999  530  
March  8,240  610  
April  9,887  590  
May  8,590  460  
June  7,631  330  
July  9,590  550  
August  7,550  290 
Assume that this information was used to construct the following formula for monthly labor cost.
Total Labor Cost = $6,924 + ($2.16 X Employee Hours) 
Required:
Assume that 3,900 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. Round your answer to the nearest dollar.
$fill in the blank 1
2. Calculate total fixed labor cost for the
coming year. Round your answer to the nearest dollar.
$fill in the blank 2
3. Calculate total labor cost for the coming year. Round your answer to the nearest dollar.
Solution:
1. $8,424
2. $83,088
3. $91,512
Explanation:
Labour cost  Employee hours  
High activity level  9,999  610 
Low activity level  7,100  290 
Change 
2,899 (99997100) 
320 (610320) 
Variable cost 
9.06 (2899/320) 

Total cost  7,100  
Variable cost element  9.06  
Fixed cost element 
4473 7100  (290 x 9.06) 
Assume 3900 employee hours
Total labour cost = $6,924 + (2.16 x employee hours) is given
Here
1. Variable labour cost = 2.16 x 3900 = 8,424
2. Fixed cost = 6924 x 12 = 83,088
3. Total labour cost = variable cost + fixed cost = 8424 + 83088 = 91,512
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