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

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

	Month	Labor Cost			Employee Hours
	January		$7,000			390
	February		8,140			580
	March		9,899			700
	April		9,787			640
	May		8,490			510
	June		7,450			380
	July		9,490			600
	August		7,531			340

Assume that this information was used to construct the following formula for monthly labor cost.

Total Labor Cost = $5,294 + ($6.58 X Employee Hours)

Required:

Assume that 4,000 employee hours are budgeted for the coming year. Use the total labor cost formula to make the following calculations:

1. Calculate total variable labor cost for the coming year. Round your answer to the nearest dollar. $

2. Calculate total fixed labor cost for the coming year. Round your answer to the nearest dollar. $

3. Calculate total labor cost for the coming year. Round your answer to the nearest dollar.

Coefficients shown by a regression program for Pizza Vesuvio's data are:

Intercept	4,431
X Variable	8.37

Required:

Use the results of regression to make the following calculations:

1. Calculate the fixed cost of labor. $

Calculate the variable rate per employee hour. $ per employee hour

2. Construct the cost formula for total labor cost. Total labor cost = $ + ($ Employee hours)

3. Calculate the budgeted cost for next month, assuming that 695 employee hours are budgeted. Round answer to the nearest dollar. $