EXERCISE 2-12 Cost Behavior; High-Low Method [L03, LO4] Speedy Parcel Service op

Question

EXERCISE 2-12 Cost Behavior; High-Low Method [L03, LO4] 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 120,000 miles during a year, the average operating cost is 11.6 cents per mile. If a truck is driven only 80,000 miles during a year, the average operating cost increases to 13.6 cents per mile. Required 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. 2. Express the variable and fixed costs in the form Y- a + bX. 3. If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred?

Explanation / Answer

Total cost on 120000 mile = 120000*11.60 = 1392000

Total cost on 80000 mile = 80000*13.60 = 1088000

Variable cost per mile = (1392000-1088000)/(120000-80000) = 7.6 per mile

Fixed cost = 1088000-(80000*7.6) = 480000

b) Y = a+bx

Y = 480000+7.6X

c) Total cost on 100000 mile = (100000*7.6+480000) = 1240000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.