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:
|
Months
|
Labor cost
|
Employee Hours
|
|
|
January
|
$7000
|
|
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
|
7,351
|
|
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. $