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 18,040 320

March 18,200 340

April 18,050 410

May 19,345 400

June 19,500 450

July 19,670 460

August 21,400 600

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

August

Month with low number of purchase orders

February

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

)

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 5,350 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?