Question

High-Low Method, Cost Formulas The controller of the South Charleston plant of Ravinia, Inc., monitored activities...

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        3,000                $2,100      
High        14,000                2,100      
Indirect labor:              
Low        3,000                $62,000      
High        14,000                128,000      
Fuel and oil for forklift:              
Low        3,000                $2,100      
High        14,000                9,800      

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 $
F $
Y $
Indirect labor:
V $
F $
Y $ + $X
Fuel and oil for forklift:
V $
F $
Y $X

2. Using your knowledge of cost behavior, predict the cost of each item for an activity output level of 8,000 moves.

Forklift depreciation $
Indirect labor $
Fuel and oil for forklift $

3. Construct a cost formula that can be used to predict the total cost of the three resources combined. If required, round your answers to two decimal places.
Materials handling cost = $ + $X

Using this formula, predict the total materials handling cost if activity output is 8,000 moves.
Y = $

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