CHAPTER $3$ High Low Method Forecasting a Mixed Cost

Worksheet #$1$

In Class Practice

HIGH$-$LOW METHOD

$\backslash$table$[[$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]]$

FYI: Total Cost$=$Total Fixed Cost $+($Variable Rate $*$ Activity$)$

Step $1.$ Find the High Low Activity for the data set

Step $2.$ Estimate the Variable Rate per unit using the High Low data

VARIABLE RATE $=$

$q,$

High Activity$-$Low Activity

$$

$$

Step $3.$ Estimate the fixed cost component using high point data

Fixed Cost$=$ Total Cost at High Point $-($Variable Rate X Activity at High Point$)$

Step $4$: Form the cost formula for labor cost

Total Cost $=$ Fixed Cost from Step $3+($Variable Rate from step $2*$ Employee Hours$)$

Step $5.$ Estimate the total labor cost for September based on $675$ Employee Hours Use your Formula created in step $4$ to solve. Show your work.