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 110,000 kilometers during a year, the average operating cost is 10.60 cents per kilometer. If a truck is driven only 63,000 kilometers during a year, the average operating cost increases to 14.40 cents per kilometer. (The Singapore dollar is the currency used in Singapore.) Requirement 1: Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation.

find: the Variable cost per kilometer, Fixed cost per year, Express the variable and fixed costs in the form Y = a + bX, If a truck were driven 97,000 kilometers during a year, what total cost would you expect to be incurred?   find the anual costs

Explanation / Answer

Variable cost per unit = Change in cost / Change in Kms.

= (110000x10.60) - (63000x14.4) / (110000 - 63000)

= 258800/47000

= $5.51 per Km.

Fixed cost = (110000 x 10.60) - (110000 x 5.51)

= $559900 per year

Total cost on 97000 Kms = (97000 x 5.51) + 559900

= $1094370

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