Using High-Low to Calculate Fixed Cost, Calculate the Variable Rate, and Construct a Cost Function

Pizza Vesuvio makes specialty pizzas. Data for the past eight months were collected:

Month		Labor Cost($)			Employee Hours
	January		6,640			410
	February		13,708			620
	March		14,593			660
	April		10,834			490
	May		12,603			570
	June		9,950			450
	July		8,728			700
	August		11,718			530

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. $fill in the blank 1

2. Using the high-low method, calculate the variable rate. $fill in the blank 2 per employee hour

3. Using the high-low method, construct the cost formula for total labor cost.

Total labor cost = $fill in the blank 3 + ($fill in the blank 4 Employee hours)

2.

1. Creating and Using a Cost Formula

   Big Thumbs Company manufactures portable flash drives for computers. Big Thumbs incurs monthly depreciation costs of $15,300 on its plant equipment. Also, each drive requires materials and manufacturing overhead resources. On average, the company uses 18,250 ounces of materials to manufacture 7,300 flash drives per month. Each ounce of material costs $3.00. In addition, manufacturing overhead resources are driven by machine hours. On average, the company incurs $36,500 of variable manufacturing overhead resources to produce 7,300 flash drives per month.

   In your calculations, round variable rate per flash drive to the nearest cent. If required, round final answers to the nearest cent.

   Required:

   1. Create a formula for the monthly cost of flash drives for Big Thumbs.

   Total cost of flash drives = + ( x Number of flash drives)

   Total cost of flash drives = $fill in the blank 3 + ($fill in the blank 4 x Number of flash drives)

   2. If the department expects to manufacture 6,000 flash drives next month, what is the expected fixed cost (assume that 6,000 units is within the company's current relevant range)? $fill in the blank 5

   What is the total variable cost (assume that 6,000 units is within the company's current relevant range)? $fill in the blank 6

   What is the total manufacturing cost (i.e., both fixed and variable) (assume that 6,000 units is within the company's current relevant range)? $fill in the blank 7