Bob Jones owns a catering company that stages banquets and parties for both indi
ID: 2493099 • Letter: B
Question
Bob Jones owns a catering company that stages banquets and parties for both individuals and companies. The business is seasonal, with heavy demand during the summer months and year-end holidays and light demand at other times. Bob has gathered the following cost information from the past year:
Month Labor Hours Overhead Costs January 2,500 $54,181 February 3,200 60,434 March 3,003 61,120 April 4,335 64,308 May 4,674 70,576 June 5,596 77,780 July 6,698 74,296 August 7,500 79,724 September 7,039 75,448 October 4,692 69,716 November 3,244 69,532 December 6,704 74,376 Total 59,185 $831,491 Using the high-low method, compute the overhead cost per labor hour and the fixed overhead cost per month. (Round variable cost to 2 decimal places, e.g. 12.25 and all other answer to 0 decimal places, e.g. 5,275.)Variable cost = $ per labor hour Fixed cost = $
Explanation / Answer
Variable Cost per Unit =(y2 y1) / (x2 x1)
Where,
y2 is the total cost at highest level of activity = 79724;
y1 is the total cost at lowest level of activity = 54181;
x2 are the number of units/labor hours etc. at highest level of activity = 7500; and
x1 are the number of units/labor hours etc. at lowest level of activity = 2500
Total Fixed Cost = y2 bx2 = y1 bx1
=41400
Variable Cost per Unit = (79724-54181) / (7500-2500) 5.11