Estimating a Cost Function

# Estimating a Cost Function - ExampleofHighLowCostEstimation

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Cost and Volume Data per Month Direct Cost \$'s Labor Hrs. January \$125,000 52,500  Low Volume February \$165,000 65,000 March \$210,000 95,000  High Volume April \$122,000 53,000 May \$215,000 92,500 Calculate Variable Cost per Direct Labor Hour Change High Vol. Low Vol. from Low March January to High Cost (March - January) \$210,000 -\$125,000 = \$85,000 = \$2.00 per direct labor hr. Direct Labor Hours (March - January) 95,000 -52,500 = 42,500 Calculate Fixed Cost for a Month Total Cost for March \$210,000          Direct Labor Hours for March 95,000      x Variable Cost per Direct Labor Hour \$2.00      = Total March Variable Cost \$190,000 (190,000) Fixed Cost Per Month \$20,000  Proof using Low Volume Month of January       Variable Rate Cost per Direct Labor Hr. \$2.00    x Direct Labor Hours for January 52,500   = Total Variable Cost @ 52,500 hrs. \$105,000

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## This note was uploaded on 10/20/2011 for the course ACC 222 taught by Professor Brewer during the Spring '08 term at Miami University.

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Estimating a Cost Function - ExampleofHighLowCostEstimation

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