Kaitly woo owner of Flower ParadiseFlower Paradise, operates a local chain of fl
ID: 2607806 • Letter: K
Question
Kaitly woo owner of
Flower ParadiseFlower Paradise,
operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee,
WooWoo
wants to set the delivery fee based on the distance driven to deliver the flowers.
WooWoo
wants to separate the fixed and variable portions of
herher
van operating costs so that
sheshe
has a better idea how delivery distance affects these costs.
SheShe
has the following data from the past seven months:
LOADING...
(Click the icon to view the data.)Use the high-low method to determine
Flower ParadiseFlower Paradise's
cost equation for van operating costs. Use your results to predict van operating costs at a volume of
15 comma 00015,000
miles.
Let's begin by determining the formula that is used to calculate the variable cost (slope).
Change in cost
/
Change in volume
=
Variable cost (slope)
Now determine the formula that is used to calculate the fixed cost component.
Total operating cost
-
Total variable cost
=
Fixed cost
Use the high-low method to determine
Flower ParadiseFlower Paradise's
operating cost equation. (Round the variable cost to the nearest cent and the fixed cost to the nearest whole dollar.)
y = $
x + $
Enter any number in the edit fields and then click Check Answer.
Data Table
Month
Miles Driven
Van Operating Costs
January. . . . . . . . . . . . . . .
15,500
$5,390
February. . . . . . . . . . . . . . .
17,400
$5,280
March. . . . . . . . . . . . . . . . .
15,400
$4,960
April. . . . . . . . . . . . . . . .
16,300
$5,340
May. . . . . . . . . . . . . . . .
16,500
$5,450
June. . . . . . . . . . . . . . . .
15,200
$5,230
July. . . . . . . . . . . . . . . . . . .
14,400
$4,680
Change in cost
/
Change in volume
=
Variable cost (slope)
Explanation / Answer
Answer
High-Low Method
As we can see that in February month the Miles driven is Highest and In July Month the miles driven is least.
Miles
Operating cost
February
17,400
5,280
July
14,400
4,680
Difference
3,000
600
Variable cost = (High Cost – Low Cost) / (High miles – Low miles)
= (5,280 – 4,680) / (17,400 – 14,400)
Variable cost = $0.2 per Mile
2.
Fixed Cost = Total Cost – Variable cost
Lets take February month, Total Cost = $5,280, Miles = 17,400
Fixed Cost = $5,280 – (17,400 Miles * $0.2 per mile)
Fixed Cost = $1,800
3.
Equation
Total Cost = Variable Cost + Fixed Cost
Total Cost = (Miles Driven * Variable cost per mile) + Fixed Cost
Y = $0.2x + $1,800
x = No. of Miles Driven
y = Total Cost
4.
Expected Cost at 15,000 miles
= ($0.2 * miles) + $1,800
= ($0.2 * 15,000 Miles) + $1,800
Expected Cost for 15,000 Miles = $4,800
Miles
Operating cost
February
17,400
5,280
July
14,400
4,680
Difference
3,000
600
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