Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a T

Question

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 8 months were collected:

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

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.
$

2. Calculate total fixed labor cost for the coming year.
$

3. Calculate total labor cost for the coming year.
$

Month 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

Explanation / Answer

1) Total variable cost for the coming year = 4000*7.40 = $29600

2) Total fixed cost = $5237

3) Total labour cost = 5237+29600 = $34837

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