Can someone please explain how to do each part of the problem along with providi
ID: 2501560 • Letter: C
Question
Can someone please explain how to do each part of the problem along with providing the answers. Thank you!
Exercise 3.19
High-Low Method, Cost Formulas
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.
2. Using your knowledge of cost behavior, predict the cost of each item for an activity output level of 9,000 moves.
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 = $ _________________
2.
Can someone please explain how to do each part of the problem along with providing the answers. Thank you!
Exercise 3.19
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:
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 $ X2. 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 = $ _________________
Explanation / Answer
1) Forklift depreciation: - Fixed as dollar cost is constant or same at different level of output. $ 1800
Indirect labor: - Mixed cost as the cost is neither fixed in totality nor in per unit .
so variable cost per unit = change in cost /change in hours
= (135000-74250 ) /(20000- 6500)
= 60750 / 13500
= $ 4.5 per hour
At 6500 hours ,Fixed cost = Total cost - variable cost
= 74250 - (4.5*6500)
= 74250 - 29250
= $ 45000
Y = 45000 + 4.5X
c)Fuel and oil for forklift: -It is a variable cost as it is constant or same in per unit.
Variable cost per unit = 4940 / 6500 or 15200 /20000 = $ .76 per unit
2) Forklift depreciation = 1800
Indirect labor = 45000 + (9000 * 4.5)
= 45000+ 40500
= $ 85500
Fuel and oil for forklift = 9000 *.76 =$ 6840
3) cost formula = ( 45000 + 1800 ) + (4.5 +. 76 ) X
= 46800 + 5.26X
Y = 46800 + (5.26 * 9000 ) = 46800 + 47340
= $ 94140