eBook

Show Me How

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	6,500	$ 1,800
High	20,000	1,800
Indirect labor:
Low	6,500	$ 74,250
High	20,000	135,000
Fuel and oil for forklift:
Low	6,500	$ 4,940
High	20,000	15,200

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	$fill
F	$fill in
Y	$fill in
Indirect labor:
V	$fill in
F	$fill in
Y	$fill in
Fuel and oil for forklift:
V	$fill in
F	$fill in
Y	$fill in

2. Using your knowledge of cost behavior, predict the cost of each item for an activity output level of 9,000 moves.

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

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 = $fill in + $fill in

Using this formula, predict the total materials handling cost if activity output is 9,000 moves. Y = $fill in