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 131,000 miles during a year, the average operating cost is 12.4 cents per mile. If a truck is driven only 81,000 miles during a year, the average operating cost increases to 12.8 cents per mile.
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.)
What is the variable cost per mile?
What is the fixed Cost per year?
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.)
Y = ( ? ) + ( ? )X
Another question based on the above formula, what would the total cost be at 99,000 miles rounded to the nearest dollar amount.
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In the high low method we take the high and low point.
The high point is 131,000 miles and the total cost would be 12.4X131,000=$1,624,400
The low point is 81,000 miles and the total cost would be ...
The solution explains how to determine the variable and fixed cost using the High-Low method