Question

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 5,000 $2,200
High 16,000 2,200
Indirect labor:
Low 5,000 $66,000
High 16,000 105,600
Fuel and oil for forklift:
Low 5,000 $3,550
High 16,000 11,360
Required:
If required, round your answers to two decimal places. Enter a "0" if required.
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

Answer 1

Results are below.

Step-by-step explanation:

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

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)

Depreciation:

Depreciation is a 100% fixed cost. It does not vary with production levels.

Indirect labor:

Variable cost per unit= (105,600 - 66,000) / (16,000 - 5,000)

Variable cost per unit= $3.6

Fixed cost= 105,600 - (3.6*16,000)

Fixed cost= $48,000

Fixed cost= 66,000 - 3.6*5,000

Fixed cost= $48,000

Total cost= 48,000 + 3.6x

Fuel and oil for forklift:

Variable cost per unit= (11,360 - 3,550) / (16,000 - 5,000)

Variable cost per unit= $0.71

Fixed cost= 11,360 - (0.71*16,000)

Fixed cost= 0

Fixed cost= 3,550 - 0.71*5,000

Fixed cost= $0

Total cost= 0.71x