Question

Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 105,000 kilometers during a year, the average operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers during a year, the average operating cost increases to 13.4 cents per kilometer.
Required:

1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation.
2. Express the variable and fixed costs in the form Y = a + bX.
3. If a truck were driven 80,000 kilometers during a year, what total cost would you expect to be incurred?

Answer 1

Answer:

1.- To estimate the variable and fixed cost elements of the annual cost operation using the high-low method.

2. To express the variable and fixed costs in the form.

3.- To find the total cost to be incurred if a trock were driven 80,000 km during the year.

Explanation:

1.- Computation of the variable and fixed cost elements of the annual cost of the trock operation using the high-low method: the average cost when the truck is driven for 105.000 km is 11.4 cents and it is $13.4 cents when 70,000 km are there.  So, the fixed cost is $4,200.2 Cost formula for total cost using the high-low method:  The variable and vixed cost in the form is 3: the total cost to be incurred if a truck were driven 80,000 km during the year: $10,120