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 177,000 kilometers during a year, the average operating cost is 12.3 cents per kilometer. If a truck is driven only 118,000 kilometers during a year, the average operating cost increases to 15.5 cents per kilometer. Required: 1. 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 147,000 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 1 Required 2 Required 3 Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.) Variable cost Fixed cost per kilometer per year

Explanation / Answer

Total cost at 177000 kms=177000*0.123= $21771 Total cost at 118000 kms=118000*0.155= $18290 1 Variable cost=(21771-18290)/(177000-118000)= $0.059 per km Fixed cost=21771-(177000*0.059)= $11328 per year 2 Y=11328+0.059X 3 Total annual cost=11328+(147000*0.059)= $20001

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