Kerri Meyer, owner of Flower Mode, operates a local chain of floral shops. Each

Question

Kerri Meyer, owner of Flower Mode, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Meyer wants to set the delivery fee based on the distance driven to deliver the flowers. Meyer wants to separate the fixed and variable portions of her van operating costs so that she has a better idea how delivery distance affects these costs. She has the following data from the past seven months: EE (Click the icon to view the data.) Use the high-low method to determine Flower Mode's cost equation for van operating costs. Use your results to predict van operating costs at a volume of 17,000 miles. Let's begin by determining the formula that is used to calculate the variable cost (slope) Variable cost (slope)

Explanation / Answer

Requirement 1 Change in Cost / Change in miles driven = Variable cost(slope) 690 / 3,000 = 0.23 per mile miles van Driven operating costs High 18,500 5,730 low 15,500 5,040 Differecne 3,000 690 Requirement 2 total operating cost - total variable cost = fixed cost 5,730 - 18500*.23 = 1475 Requirement 3 Y= $ 0.23 x + $ 1,475 Requirement 4 The operating cost at a volume of 17,000 miles 5385 (!7000*.23 +1475

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