Question

Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 141,000 kilometers during a year, the average operating cost is 12.1 cents per kilometer. If a truck is driven only 94,000 kilometers during a year, the average operating cost increases to 14.6 cents per kilometer.
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 141,000 kilometers during a year, the average operating cost is 12.1 cents per kilometer. If a truck is driven only 94,000 kilometers during a year, the average operating cost increases to 14.6 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 117,000 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 costſ per kilometer per year Required 1 Required 2 >

Answer 1

1
	Kilometers	Total cost
High level	141000	17061	=141000*0.121
Low level	94000	13724	=94000*0.146
Difference	47000	3337
Variable cost	0.071	per kilometer	=3337/47000
Fixed cost	7050	per year	=17061-(141000*0.071)
2
Y = 7050 + 0.071 X
3
Total annual cost	15357		=7050+(117000*0.071)