Question

Kate Coughlin, owner of Rose Red, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Coughlin wants to set the delivery fee based on the distance driven to deliver the flowers. Coughlin wants to separate the fixed and variable portions of her van operating costs so that she has a better idea how delivery distance affects these costs. She has the following data from the past seven months: (Click the icon to view the data.) Use the high-low method to determine Rose Red's cost equation for van operating costs. Use your results to predict van operating costs at a volume of 17,000 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 Rose Red's operating cost equation. (Round the variable cost to the nearest cent and the fixed cost to the nearest whole dollar.) y = $ x+$

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

AB Answer 2 Part 1) 3 Formula for slope 4 = change in cost / change in volume = variable cost (slope) 6 Part 2) 7 Fixed cost component 3 total operating cost - total variable cost = Fixed cost 0 Part 3) 2 Firstly we have to calculate the variable cost per mile 3 = (high level cost - low level cost) / (high level units - low level units) 4 = (5700-4920)/(17500-14500) 5 = $ 0.26 Per mile 7 Fixed cost 8 Total operating cost - avriable cost = fixed cost 9 5700 - (-26*17500) = fixed cost 20 $ 1150 = fixed cost 22 Thus the correct answer is 23 Y = $.26 X +$ 1150 5 In the above equation 26 Y = total operating cost 27 x = no. of miles