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 178,000 kilometres during a year, the average operating cost is 14.5 cents per kilometre. If a truck is driven only 89,000 kilometres during a year, the average operating cost increases to 16.4 cents per kilometre. (The Singapore dollar is the currency used in Singapore.)

Hoi Chong Transport, Ltd operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 178,000 kilometres during a year, the average operating cost is 14.5 cents per kilometre. If a truck is driven only 89,000 kilometres during a year, the average operating cost increases to 16.4 cents per kilometre. (The Singapore dollar is the currency used in Singapore.) 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" to 3 decimal places.) Variable cost 0.126 per kilometre Fixed cost per year 2. Express the variable and fixed costs in the form Y= a + bX (Round the "Variable cost" to 3 decimal places.) 3. If a truck were driven 99,000 kilometres during a year, what total cost would you expect to be incurred? Round your intermediate calculations to 3 decimal places.) Total annual cost

Explanation / Answer

* 178,000 kilometers * $0.145 per kilometer = $11,940

89,000 kilometers × $0.1640 per kilometer = $10,836

Variable cost per kilometer: Change in cost / Change in activity

= 11214 / 89000

= 0.126 per kilometer

Fixed cost per year: (Due to rounding your answer may be slightly different

2.) Y = a + bX

Y = 1996 + 0.126 X

3)

1) Variable cost 0.126 Per kilometer Fixed cost 1996 Per year

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