Question

1. 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:

   Resource		Number of Moves		Total Cost
   Forklift depreciation:
   Low		5,500		$3,400
   High		18,500		3,400
   Indirect labor:
   Low		5,500		$87,100
   High		18,500		167,700
   Fuel and oil for forklift:
   Low		5,500		$3,520
   High		18,500		11,840

   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	$fill in the blank 1
   F	$fill in the blank 2
   Y	$fill in the blank 3
   Indirect labor:
   V	$fill in the blank 4
   F	$fill in the blank 5
   Y	$fill in the blank 6 + $fill in the blank 7X
   Fuel and oil for forklift:
   V	$fill in the blank 8
   F	$fill in the blank 9
   Y	$fill in the blank 10X

   2. Using your knowledge of cost behavior, predict the cost of each item for an activity output level of 8,000 moves.

   Forklift depreciation	$fill in the blank 11
   Indirect labor	$fill in the blank 12
   Fuel and oil for forklift	$fill in the blank 13

   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 = $fill in the blank 14 + $fill in the blank 15X

   Using this formula, predict the total materials handling cost if activity output is 8,000 moves.
   Y = $fill in the blank 16

Answer 1

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