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High-Low Method

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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.

Many thanks to whoever can assist in this problem.

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Solution Preview

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 ...

Solution Summary

The solution explains how to determine the variable and fixed cost using the High-Low method

See Also This Related BrainMass Solution

High-Low Points Method and the High/Low Method

1. High-Low Points Method

BEYONDBIKES.COM considers electricity a mixed cost. By using a scatter chart, George has determined that there is a relationship between electricity expense and the number of hours per month the store is open. During the past year, electricity expense totaled $7200 in the month that the store was open 1200 hours and $4200 in the month that it was open 300 hours. What fixed monthly cost and hourly rate should George use to estimate electricity expense for the upcoming year?

2. High/Low Method

BEYONDBIKES.COM frequently hires temporary secretarial help and also pays overtime wages to its full-time secretaries. Management believes that the need for additional secretarial help is based on either total sales or the number of employee hours worked. I have already determined this by preparing a Scatter Graph and it is TOTAL SALES! Data from last yearâ??s records are shown below:

Month Total Total Total
Secretarial Sales Number
Expense of Employee

January $13,000 $90,000 20,000
February $14,000 $100,000 10,000
March $14,000 $110,000 25,000
April $16,000 $160,000 30,000
May $12,000 $80,000 14,000
June $17,000 $180,000 28,000
July $20,000 $240,000 30,000
August $15,000 $150,000 20,000
September $22,000 $300,000 30,000
October $19,000 $200,000 15,000
November $20,000 $250,000 18,000
December $15,000 $130,000 12,000

Using the appropriate cost driver (TOTAL SALES) use the high-low points method to calculate the variable rate and the fixed cost per month.

HINT: You do not need Employee Hours to solve this!

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