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 177,000 kilometers during a year, the average operating cost is 12.3 cents per kilometer. If a truck is driven only 118,000 kilometers during a year, the average operating cost increases to 15.5 cents per kilometer. Required 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places and Fixed cost answer to nearest whole dollar amount.) Kilometers Total Annual Driven Cost High level of activity Low level of activity Change Variable cost per kilometer Fixed cost per year per kilometer 2. Express the variable and fixed costs in the form Y a + bX. (Do not round your intermediate calculations. Round the variable cost per kilometer to 3 decimal places.) 3. If a truck were driven 147,000 kilometers during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations.) Total annual cost

Explanation / Answer

Answer: Requirement 1 Kilometers Driven Total Annual Cost High level of activity            177,000.00 $    2,177,100.00 Low level of activity            118,000.00 $    1,829,000.00 Change              59,000.00 $       348,100.00 Variable cost per kilometer $                    5.90 Per kilometer ($348,100/59,000) Fixed cost per year $    1,132,800.00 ($1,829,000-118,000*5.9) Requirement 2 Variable cost in y=a+bx form. Y = $1,132,800 + $5.9X Requirement 3 Total cost if tuck is driven 147,000 kilometers during the year Total cost =$1,132,800+147,000*$5.9 $    2,000,100.00

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