Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The

Question

Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 178,000 kilometres during a year, the average operating cost is 14.5 cents per kilometre. If a truck is driven only 89,000 kilometres during a year, the average operating cost increases to 16.4 cents per kilometre. (The Singapore dollar is the currency used in Singapore.)

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" to 3 decimal places.)

Hoi Chong Transport, Ltd operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 178,000 kilometres during a year, the average operating cost is 14.5 cents per kilometre. If a truck is driven only 89,000 kilometres during a year, the average operating cost increases to 16.4 cents per kilometre. (The Singapore dollar is the currency used in Singapore.) 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" to 3 decimal places.) Variable cost Fixed cost per kilometre per year 2. Express the vanable and fixed costs in the form Y# a bk (Round the "Variable cost" to 3 decimal places.) 3. if a truck were driven 99,000 kilometres during a year, what total cost would you expect to be incurred? (Round your intermediate calculations to 3 decimal places.)

Explanation / Answer

Total cost at 178000 kilometers=(178000*0.145)=25810

Total cost at 89000 kilometers=(89000*0.164)=14596

Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

=(25810-14596)/(178000-89000)=$0.126 per kilometers

Fixed cost=25810-(0.126* 178000)=$3382

2.

Y=a+bX

where a=Fixed cost

while b=Variable cost per kilometer

Hence

Y=3382+0.126X

3.

NOTE:Total fixed cost and variable cost per unit do not change with change in units.

Hence total cost incurred=(3382+0.126X)

=3382+(0.126*99000)=$15856.

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