Speedy Parcel Service operates a fleet of delivery trucks in a large metropolita

Question

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. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)



Variable cost $ per mile
Fixed cost $ per year

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2. Express the variable and fixed costs in the form Y = a + bX. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)


Y = $ + $ X

3. If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred? (Round the "Variable cost per mile" to 3 decimal places. Round your intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)


Total annual cost $

check my workeBook Links (2)references
Worksheet Learning Objective: 02-03 Understand cost behavior patterns including variable costs, fixed costs, and mixed costs.
Difficulty: Easy Learning Objective: 02-04 Analyze a mixed cost using a scattergraph plot and the highlow method.

Explanation / Answer

1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. Variable cost per mile $ .076 Fixed cost $ per year $ 4800 -------------------------------------------------------------------------------- 2. Express the variable and fixed costs in the form Y = a + bX. ( Y = $ + $ X Y = $ 4800 + $ .076 X 3. If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred? Total annual cost $ 12400

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