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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 eight months were collected:

Month
Labor Cost($)
Employee Hours

January

7,556

310

February

10,392

470

March

11,055

500

April

8,181

370

May

9,507

430

June

7,517

340

July

9,932

530

August

8,844

400

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)
 
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