Question

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 4,000 $3,200
High 15,000 3,200
Indirect labor:
Low 4,000 $83,200
High 15,000 147,000
Fuel and oil for forklift:
Low 4,000 $ $3,550
High 16,000 11,360
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 $
F $
Y $
Indirect labor:
V $
F $
Y $ + $X
Fuel and oil for forklift:
V $
F $
Y $X
2. Using your knowledge of cost behavior, predict the cost of each item for an activity output level of 11,000 moves.
Forklift depreciation $
Indirect labor $
Fuel and oil for forklift $

Answer 1

Results are below.

Step-by-step explanation:

To calculate the variable and fixed costs, we need to use the following formulas:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= LAC - (Variable cost per unit* LAU)

Forklift depreciation:

Low 4,000 $3,200

High 15,000 3,200

Depreciation is a fixed cost. It doesn't vary with the number of units produced.

Indirect labor:

Low 4,000 $83,200

High 15,000 147,000

Variable cost per unit= (147,000 - 83,200) / (15,000 - 4,000)

Variable cost per unit= $5.8

Fixed costs= 147,000 - (5.8*15,000)

Fixed costs= $60,000

Fixed costs= 83,200 - (5.8*4,000)

Fixed costs= $60,000

Fuel and oil for forklift:

Low 4,000 $ $3,550

High 16,000 11,360

Variable cost per unit= (11,360 - 3,550) / (16,000 - 4,000)

Variable cost per unit= $0.651

Fixed costs= 11,360 - (0.651*16,000)

Fixed costs= $944

Fixed costs= 3,550 - (0.651*4,000)

Fixed costs= $944

Now, the cost for 11,000 moves:

Depreciation= $3,200

Indirect labor= 60,000 + 5.8*11,000

Indirect labor= $123,800

Fuel and oil for forklift= 944 + 0.651*11,000

Fuel and oil for forklift= $8,105