Using High-Low to Calculate Fixed Cost, Calculate the Variable Rate, and Construct a Cost Function
Pizza Vesuvio makes specialty pizzas. Vesuvio's controller wants to calculate the fixed and variable costs associated with labor used in the restaurant. Data for the past eight months were collected:
Month Labor Cost($) Employee Hours
January 6,900 350
February 8,040 540
March 9,799 640
April 9,687 600
May 8,390 470
June 7,350 340
July 9,390 560
August 7,431 300
In your calculations, round the variable rate per employee to the nearest cent. If required, round your final answers to the nearest cent.
1. Using the high-low method, calculate the fixed cost of labor.
2. Using the high-low method, calculate the variable rate.
$ per employee hour
3. Using the high-low method, construct the cost formula for total labor cost.
Total labor cost = $ + ($ × Employee hours)