Question

1.		ABC Toy Store, Inc. operates several retail locations throughout the county.
		The data below represents its labor cost for the first six months of 2019 at its
		store.
			Month		Labor Cost		Sales
			------------		-----------------------		------------------
			January	$	183,000	$	570,000
			February		190,000		600,000
			March		178,000		550,000
			April		187,000		590,000
			May		140,000		400,000
			June		167,000		510,000
		a.	Using the high-low method, estimate the fixed and variable components of
			labor cost .  Express the cost behavior in equation form.
		b.	Draw a graph of the cost behavior.  Show which areas represent fixed costs,
			variable costs, and total labor costs.

I am having troubling with the high to low method between the sales and labor cost shown here. I think I am plugging in the wrong values when I try computing the answer.

Thanks!

Answer 1

a

Month	Sales	Labor cost
Jan	$ 5,70,000	$        1,83,000
Feb	$ 6,00,000	$        1,90,000
Mar	$ 5,50,000	$        1,78,000
Apr	$ 5,90,000	$        1,87,000
May	$ 4,00,000	$        1,40,000
Jun	$ 5,10,000	$        1,67,000
High	$ 6,00,000	$        1,90,000
Low	$ 4,00,000	$        1,40,000
Variable cost	$               0.25
= (190000-140000)/(600000-400000)
Fixed cost		$           40,000
= 190000-600000 × 0.25
Equation=	Labor cost   =   0.25 × Sales + 40000

b

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