A floral shop is analyzing the cost of making deliveries. They believe miles dri

Question

A floral shop is analyzing the cost of making deliveries. They believe miles driven is the cost driver of delivery van operating costs. Here is historical data on miles and costs. Use the High-Low method to determine the cost function for this cost. What would predicted van operating costs be at 19436 miles? Miles Driven Van Operating Costs January 15500 $5,400 February 17500 $5,350 March 14400 $4,980 April 16400 $5,280 May 16900 $5,580 June 15300 $5,010 July 13500 $4,590 Enter your final answer to two decimal places.

Explanation / Answer

By considering the cost, the high level is in the month of May with 16,900 miles and cost of $5,580.

By considering the cost, the lowest level is in the month of March with 14,400 miles and cost of $4,980.

Variable cost per mile = ($5,580 - $4,980)/(16,900 miles - 14,400 miles)

= $600/2,500 miles

= $0.24 per mile

Fixed cost = $5,580 - (16,900 miles * $0.24 per mile

= $5,580 - $4,056

= $1,524

So cost function = $1,524 + Miles * $0.24

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