1.High-Low Method to Determine Fixed Cost and Variable Rate

McGarvey Manufacturing Company had the following 12 months of data on purchasing cost and number of purchase orders.

Month		Purchasing Cost		Number of Purchase Orders
January		$19,250		370
February		18,040		330
March		18,200		340
April		18,050		410
May		19,345		400
June		19,500		450
July		19,670		460
August		21,280		600
September		19,430		440
October		20,020		570
November		18,800		470
December		19,340		480

Required:

1. Determine the high point and the low point.

Month with high number of purchase orders	JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberAugust
Month with low number of purchase orders	JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberFebruary

2. Calculate the variable rate for purchasing cost based on the number of purchase orders. (Round to the nearest cent.) $fill in the blank 3 per purchase order

3. Calculate the fixed monthly cost of purchasing. $fill in the blank 4

4. Write the cost formula for the purchasing activity showing the fixed cost and the variable rate. Round variable rate to the nearest cent.

Total purchasing cost

=

$fill in the blank 5

+

($fill in the blank 6

x

Fixed costMixed costMonthsPurchase ordersUnitsVariable ratePurchase orders )

5. If McGarvey Manufacturing Company estimates that next month will have 420 purchase orders, what is the total estimated purchasing cost for that month?

$fill in the blank 8

6. What if McGarvey Manufacturing wants to estimate purchasing cost for the coming year and expects 5,330 purchase orders? What will estimated total purchasing cost be? $fill in the blank 9

What is the total fixed purchasing cost? $fill in the blank 10

Why doesn't it equal the fixed cost calculated in Requirement 3 above?

because there are more purchase ordersbecause there are 12 months in the yearbecause the high-low method can no longer be usedit is the samebecause there are 12 months in the year