Using High-Low to Calculate Fixed Cost, Calculate the Variable Rate, and Construct a Cost Function

Pizza Vesuvio makes specialty pizzas. Data for the past 8 months were collected:

Month Labor Cost($) Employee Hours January 9,290 310 February 6,800 360 March 7,331 380 April 7,940 290 May 9,587 340 June 8,290 260 July 10,378 430 August 7,300 240 Pizza Vesuvio's controller wants to calculate the fixed and variable costs associated with labor used in the restaurant.

In your calculations, round the variable rate per employee hour to the nearest cent. If required, round your final answers to the nearest cent.

Required:

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)