If a truck is driven 131,000 miles during a year, the averageoperating cost is 1

Question

If a truck is driven 131,000 miles during a year, the averageoperating cost is 11.9 cents per mile. If a truck is drivenonly 84,000 miles during a year, the average operating costincreases to 13.3 cents per mile. 1. Using the high-low method, estimate the variable andfixed cost elements of the annual cost of truck operation. Variable cost per mile- Fixed cost per year- 2. Express the variable and fixed costs in the formY=a+bX Y= $_________ + $____________X 3. Based on the formula computed #2, what wiould you expectthe total cost to be at 100,000 miles? If a truck is driven 131,000 miles during a year, the averageoperating cost is 11.9 cents per mile. If a truck is drivenonly 84,000 miles during a year, the average operating costincreases to 13.3 cents per mile. 1. Using the high-low method, estimate the variable andfixed cost elements of the annual cost of truck operation. Variable cost per mile- Fixed cost per year- 2. Express the variable and fixed costs in the formY=a+bX Y= $_________ + $____________X 3. Based on the formula computed #2, what wiould you expectthe total cost to be at 100,000 miles?

Explanation / Answer

Miles Operating Cost High activity level 131,000 miles 131,000 * 11.9 $1,558,900.00 Low activity level 84,000 miles 84,000 * 13.3 $1,117,200.00 Change 47,000 miles $441,700 1 Variable Cost per Mile = Change in Operating Cost / Change inmiles Variable Cost per Mile = $441,700 / 47,000 miles Variable Cose per Mile = $9.39 per mile Fixed Cost = Total Cost - Total Variable cost Fixed Cost = $1,558,900 - ($9.39 per mile * 131,000miles) Fixed Cost = $1,558,900 - 1,230,090 Fixed Cost = $328,810 2 Total Cost = Fixed Cost + Variable Cost (Y=a+bX) Y=$328,810 + $9.39X Miles Operating Cost 3 High activity level 131,000 miles 131,000 * 11.9 $1,558,900.00 Low activity level 100,000 miles 100,000 * 13.3 $1,330,000.00 Change 31,000 miles $228,900 Variable Cost per Mile = Change in Operating Cost / Change inmiles Variable Cost per Mile = $228,900 / 31,000 miles Variable Cose per Mile = $7.38 per mile Fixed Cost = Total Cost - Total Variable cost Fixed Cost = $1,558,900 - ($7.38 per mile * 131,000miles) Fixed Cost = $1,558,900 - $966,780 Fixed Cost = $592,120 Total Cost = Fixed Cost + Variable Cost(Y=a+bX) Y=$592,120 + $7.38X Hope it may helps you Miles Operating Cost High activity level 131,000 miles 131,000 * 11.9 $1,558,900.00 Low activity level 84,000 miles 84,000 * 13.3 $1,117,200.00 Change 47,000 miles $441,700 1 Variable Cost per Mile = Change in Operating Cost / Change inmiles Variable Cost per Mile = $441,700 / 47,000 miles Variable Cose per Mile = $9.39 per mile Fixed Cost = Total Cost - Total Variable cost Fixed Cost = $1,558,900 - ($9.39 per mile * 131,000miles) Fixed Cost = $1,558,900 - 1,230,090 Fixed Cost = $328,810 2 Total Cost = Fixed Cost + Variable Cost (Y=a+bX) Y=$328,810 + $9.39X Miles Operating Cost 3 High activity level 131,000 miles 131,000 * 11.9 $1,558,900.00 Low activity level 100,000 miles 100,000 * 13.3 $1,330,000.00 Change 31,000 miles $228,900 Variable Cost per Mile = Change in Operating Cost / Change inmiles Variable Cost per Mile = $228,900 / 31,000 miles Variable Cose per Mile = $7.38 per mile Fixed Cost = Total Cost - Total Variable cost Fixed Cost = $1,558,900 - ($7.38 per mile * 131,000miles) Fixed Cost = $1,558,900 - $966,780 Fixed Cost = $592,120 Total Cost = Fixed Cost + Variable Cost(Y=a+bX) Y=$592,120 + $7.38X

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