Question

Pizza Vesuvio makes specialty pizzas. Data for the past 8 months were collected: Month Labor Cost($) Employee Hours January 9,290 300 February 6,800 350March 7,331 370 April 7,940 280 May 9,587 320 June 8,290 250 July 10,324 410 August 7,300 230 Pizza Vesuvio's controller wants to calculate the fixed and variable costs associated with labor used in the restaurant. In your calculations, round the variable rate per employee hour to the nearest cent. If required, round your final answers to the nearest cent. Required: 1. Using the high-low method, calculate the fixed cost of labor. $ ________2. Using the high-low method, calculate the variable rate. $ _______ 3. Using the high-low method, construct the cost formula for total labor cost. Total labor cost =

Answer 1

Answer:

1. $2,296

2. $19.58

3. Total labor cost = Fixed cost + (variable cost × employee hour)

Explanation:

The computations are shown below:

1. The fixed cost would be

= High labor cost - (High employee hours × Variable rate per hour)

= $10,324  - (410 hours × $19.58)

= $10,324 - $8,028

= $2,296

2. Variable rate per hour = (High labor cost - low labor cost) ÷ (High employee hours - low employee hours)

= ($10,324 - $6,800) ÷ (410 hours - 230 hours)

= $3,524 ÷ 180 hours

= $19.58

3. The cost formula would be

Total labor cost = Fixed cost + (variable cost × employee hour)

                          = $2,296 + ($19.58 × employee hour)