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Speedy Parcel Service: high-low method, estimate the variabl

Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company's cost analyst has determined that if a truck is driven 138,000 miles during a year, the average operating cost is 14.8 cents per mile. If a truck is driven only 92,000 miles during a year, the average operating cost increases to 18.6 cents per mile.

Required:
1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

Variable cost $
per mile
Fixed cost $
per year
________________________________________

2. Express the variable and fixed costs in the form Y = a + bX. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

Y = $
+ $
X

3. If a truck were driven 115,000 miles during a year, what total cost would you expect to be incurred? (Round the "Variable cost per mile" to 3 decimal places. Round your intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

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Solution Summary

Your tutorial shows you how to compute the high low method, how to express the cost formula and how to make a prediction using the cost formula. See template in Excel (click in cells to see computations).

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