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Material Handling Cost Analysis

This document provides information to calculate fixed and variable material handling costs using three different activity levels: direct labor hours, direct labor hours using a statistical formula, and cost of material issued. It determines that direct labor hours is the best measure as material handling costs vary more in relation to direct labor hours than cost of material.

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Chaitu
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6 views2 pages

Material Handling Cost Analysis

This document provides information to calculate fixed and variable material handling costs using three different activity levels: direct labor hours, direct labor hours using a statistical formula, and cost of material issued. It determines that direct labor hours is the best measure as material handling costs vary more in relation to direct labor hours than cost of material.

Uploaded by

Chaitu
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.

Requirement 1: Determine the fixed and variable material handling costs using direct labor

hours as follows:
Cost at the high activity level − Cost at the low activity level
Variable cost =
High activity level – Low activity level
$2 − $1.60
Variable cost =
8 labor hours − 4 labor hours
Variable cost = $0.10 per machine hour
Fixed cost = Total cost − Total variable cost
Fixed costs = $1.20 ($1.60 − ($0.10 per labor hour × 4 labor hours))
Requirement 2: Determine the fixed and variable material handling costs using direct labor
hours as follows:
Compute variable cost per unit of activity or slope as follows:
𝑛(∑XY) − (∑X)(∑Y)
The variable cost per hour (𝑏) =
𝑛(∑X 2 ) − (∑X)2
(5 × 55) − (30 × 9))
The variable cost per hour (𝑏) =
(5 × 190) − (30)2
The variable cost per hour (𝑏) = $. 10
(∑Y) − 𝑏(∑X)
The total fixed cost =
𝑛
9 − ($0.10 × 30)
The total fixed cost =
5
The total fixed cost = $1.20
Notes:
Labor Handling
Month 𝐗𝟐 𝐗 × 𝐘
Hours (X) Costs (Y)
1 4 1.6 16 6.4
2 5 1.7 25 8.5
3 6 1.8 36 10.8
4 7 1.9 49 13.3
5 8 2.0 64 16.0
(∑X) = 30 2
(∑X) = 190
Total (∑Y) = 9 ∑XY = 55
Requirement 3: Determine the fixed and variable material handling costs using cost of material
issued follows:
Compute variable cost per unit of activity or slope as follows:
𝑛(∑XY) − (∑X)(∑Y)
The variable cost per hour (𝑏) =
𝑛(∑X 2 ) − (∑X)2
(5 × 54.1) − (30 × 9))
The variable cost per hour (𝑏) =
(5 × 190) − (30)2
The variable cost per hour (𝑏) = $. 010
(∑Y) − 𝑏(∑X)
The total fixed cost =
𝑛
9 − ($0.010 × 30)
The total fixed cost =
5
The total fixed cost = $1.74
Notes:
Material Cost Handling
Month 𝐗𝟐 𝐗 × 𝐘
(X) Costs (Y)
1 $7 1.6 49 11.2
2 $5 1.7 25 8.5
3 $4 1.8 16 7.2
4 $8 1.9 64 15.2
5 $6 2.0 36 12.0
(∑X) = 30 2
(∑X) = 190
Total (∑Y) = 9 ∑XY = 54.1

Requirement 4:
Direct labor hours is a better measure because material handling costs vary more in relation to
direct labor hours rather than the cost of material.

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