Question

KarenKaren

SmithSmith​,

owner of

Flower ParadiseFlower Paradise​,

operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery​ fee,

SmithSmith

wants to set the delivery fee based on the distance driven to deliver the flowers.

Smith

wants to separate the fixed and variable portions of

herher

van operating costs so that

sheshe

has a better idea how delivery distance affects these costs.

SheShe

has the following data from the past seven​ months:

LOADING...

​(Click the icon to view the​ data.)Use the​ high-low method to determine

Flower ParadiseFlower Paradise​'s

cost equation for van operating costs. Use your results to predict van operating costs at a volume of

15 comma 00015,000

miles.

​Let's begin by determining the formula that is used to calculate the variable cost​ (slope).

Change in cost

/

Change in volume

=

Variable cost (slope)

Now determine the formula that is used to calculate the fixed cost component.

Total operating cost

-

Total variable cost

=

Fixed cost

Use the​ high-low method to determine

Flower ParadiseFlower Paradise​'s

operating cost equation. ​(Round the variable cost to the nearest cent and the fixed cost to the nearest whole​ dollar.)

y = $

x + $

Month	Miles Driven	Van Operating Costs
January. . . . . . . . . . . . . . .	15,700	$5,350
February. . . . . . . . . . . . . . .	16,500	$5,160
March. . . . . . . . . . . . . . . . .	14,500	$4,960
April. . . . . . . . . . . . . . . . . .	16,000	$5,320
May. . . . . . . . . . . . . . . . . .	16,300	$5,500
June. . . . . . . . . . . . . . . . . .	15,100	$5,050
July. . . . . . . . . . . . . . . . . . .	14,000	$4,560

PrintDone

Answer 1

Change in cost / Change in volume = Variable cost (Slope)

(Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity) = Variable cost per mile

(5,160-4,560)/(16,500 - 14,000) = Variable cost per mile

600/2,500 = Variable cost per mile

0.24 per miles = Variable cost per mile

Total operating cost -Total variable cost = Fixed cost

5,160- (16,500 x 0.24) = Fixed cost

$1,200 = Fixed cost

Operating equation

y = $0.24x + $1,200

predict van operating costs at a volume of 15,000 miles

= Fixed cost + Variable cost per miles x Activity miles

= 1,200 + 0.24x 15,000

= $4,800

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Thanks