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 150,000 kilometers during a year, the average operating cost is 12.4 cents per kilometer. If a truck is driven only 100,000 kilometers during a year, the average operating cost increases to 15.2 cents per kilometer. Required: . Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks. 2. Express the variable and fixed costs in the form Y=a + bX. 3. If a truck were driven 125,000 kilometers during a year, what total operating cost would you expect to be incurred? Complete this question by entering your answers in the tabs below. Required 1Required 2 Required 3 Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associat with the fleet of trucks. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.) Variable cost per kilometer Fixed cost per year

Explanation / Answer

ans)

1. Kilometers driven Total Annual cost

High level of activity 150,000 * 18600

Low level of activity 100,000 * 15200

Change 50,000 3400

*150,000 kilometers X $0.124 = $18600

* 100,000 Kilometres X $0.152 = $15200

Variable cost per kilometer = Change in cost / change in activity

= $3400 / 50,000 kilometers

= $0.068 per kilometer

Fixed cost per year :

Total cost at 150,000 kilometers = 18600

Less: Variable cost 150,000 X 0.068 = (10200)

Fixed cost per year 8400

2) Y = 8400 + 0.068X

3) Fixed cost = 8400

Variable cost ( 125000 X 0.068) = 8500

Total annual cost 16900

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