Collins Company had the following cost data available. The Collins accountant be
ID: 2499500 • Letter: C
Question
Collins Company had the following cost data available. The Collins accountant believes that direct labor hours is the correct cost driver to use to predict and manage these costs.
$100,000; 15,000 direct labor hours for January
$80,000; 12,000 direct labor hours for February
$90,000; 14,000 direct labor hours for March
$75,000; 11,000 direct labor hours for April
$85,000; 12,500 direct labor hours for May
$70,000; 10,000 direct labor hours for June
Use the high-low method to compute the total amount of monthly fixed costs for Collins Company.
$10,000
$0
$15,000
$90,000
$60,000
$30,000
$10,000
$0
$15,000
$90,000
$60,000
$30,000
Explanation / Answer
COMPUTATION OF COST USING HIGH-LOW METHOD
VARIABLE COST = HIGHEST LABOUR COST - LOWEST LABOUR COST
HIGHEST LABOUR HOURS - LOWEST LABOUR HOURS
=100000-70000 / 15000-10000
= $6 PER DIRECT LABOUR HOURS
FIXED COST (TAKING 15000 LABOUR HOURS AS BASE)
= TOTAL COST - VARIABLE COST
= 100000 - (15000*6)
=100000-90000
= $10000