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

Forklife depreciation

Low 3,500 $3,500

High 18,500 3,500

Indirect Labor:

Low 3,500 $50,100

High 18,500 119,100

Fuel and oil for Forklife

Low 3,500 $2,835

High 18,500 14,985

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 9,000 moves.

Forklift depreciation	$
Indirect labor	$
Fuel and oil for forklift	$

3. Construct a cost formula that can be used to predict the total cost of the three resources combined. If required, round your answers to two decimal places.

Materials handling cost = $ _________________ + $ _________________ X

Using this formula, predict the total materials handling cost if activity output is 9,000 moves. Y = $ _________________