Question

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

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Data for the past 8 months were collected:

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

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

1) To calculate the variable cost we need to use the following formula:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (9,899 - 7,000) / (630 - 310)= $9.06 per unit

2) Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 9,899 - (9.06*630)= $4,191

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 7,000 - (9.06*310)= $4,191

3) direct labor hours= 4,000

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

Total Labor Cost= 5,237 + (7.4*4,000)= $34,837