Prompt Parcel Service operates a fleet of delivery trucks in a large metropolita
ID: 2491373 • Letter: P
Question
Prompt 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 72,000 kilometres during a year, the average operating cost is 19.0 cents ($0.190) per kilometre. If a truck is driven only 52,000 kilometres during a year, the average operating cost increases to 20.0 cents ($0.200) per kilometre.
Using the high–low method, estimate the variable and fixed cost elements of the annual cost of operating a truck if it is driven 72,000 kms. (Round intermediate values to 3 decimal places.)
Variable Cost
fixed cost
b)
Express the variable and fixed costs in the form Y = a + bX. (Round "Variable cost per kilometre" answer to 3 decimal places.)
Y= + X
C)
If a truck was driven 62,000 kilometres during a year, what total cost would you expect to be incurred?(Round intermediate values to 3 decimal places.)
Total Cost=
Prompt 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 72,000 kilometres during a year, the average operating cost is 19.0 cents ($0.190) per kilometre. If a truck is driven only 52,000 kilometres during a year, the average operating cost increases to 20.0 cents ($0.200) per kilometre.
Explanation / Answer
VARIABLE COST
= CHANGE IN OPERATING COST / CHANGE IN TOTAL K.M
= [(72000 * $0.190) - (52000 * $0.20)] / 72000 - 52000
= ($13680 - $10400) / 20000
= $3280 / $20000
= $0.164
TOTAL OPERATING COST IN 72000 K.M
= 72000 * $0.19
= $13680
TOTAL VARIBALE COST
= 72000 * $0.164
= $11808
TOTAL FIXED COST
= $13680 - $11808
= $1872
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Y = A + BX
Y = $1872 + $0.164 X
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IF THE TRUCK DRIVEN 62000 K.M DURING YEAR TOTAL COST
= 62000 * $0.164 + $1872
= $10168 + $1872
= $12040
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