Question

Using High-Low to Calculate Fixed Cost, Calculate the Variable Rate, and Construct a Cost Function Pizza Vesuvio makes specialty pizzas. Vesuvio's controller wants to calculate the fixed and variable costs associated with labor used in the restaurant. Data for the past eight months were collected: Month Labor Cost($) Employee Hours January 7,000 410 February 8,140 600 March 9,899 690 April 9,787 660 May 8,490 530 June 7,450 400 July 9,490 620 August 7,531 360 In your calculations, round the variable rate per employee to the nearest cent. If required, round your final answers to the nearest cent. 1. Using the high-low method, calculate the fixed cost of labor. $ 2. Using the high-low method, calculate the variable rate. $ per employee hour 3. Using the high-low method, construct the cost formula for total labor cost. Total labor cost = _____________

Answer 1

Answer:

Fixed component 5,237

Variablwe 7.4 per hour

cost formula

$C_{dl} = 7.4DL_h+5,237$

Explanation:

We list and highlight

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

We subtract low from high:

$\left[\begin{array}{ccc}High&630&9899\\Low&310&7531\\Diference&320&2368\\\end{array}\right]$

Then we solve for the variable as we are given the fact that 320 hours generate 2,368 labor cost

2,368 / 320 = 7.4 variable labor

then we solve for fixed cost:

Total Cost            9899

Variable 630 x 7.4 = (4662)  

Fixed Cost             5237