Question

Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 113,000 kilometres during a year, the average operating cost is 12.508 cents per kilometre. If a truck is driven only 78,000 kilometres during a year, the average operating cost increases to 15.3 cents per kilometre. (The Singapore dollar is the currency used in Singapore.) Required: 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Round the "Variable cost" to 5 decimal places. Round "Fixed cost" to 2 decimal places.) Variable cost per kilometre Fixed cost per year 2. Express the variable and fixed costs in the form Y= a + bx. (Round the "Variable cost" to 5 decimal places. Round "Fixed cost" to 2 decimal places.) Y = X 3. If a truck were driven 88,000 kilometres during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations. Round "Total annual cost" to 2 decimal places.) Total annual cost

Answer 1

			Operating	Kms
			Cost	Driven
High activity		14134.04	1,13,000
Low activity		11934	78,000
Change			2200.04	35,000
VC per km = Change in Operating cost / Change in Kms
		2200.04 / 35000 = 6.29 cents per kms
Total Fixed cost
Total cost of High activity			14134.04
Less: Total Variable cost (113000*0.0629)		7107.7
Total Fixed cost				7026.34
Req 1.
Variable cost				6.29 cents	per km
Fixed cost					7026.34
Req 2.
Y = 7026.34 + 0.0629 X
Req 3.
Total cost for 88,000 kms:
Variable cost (88,000 kms @ 0.0629)		5535.2
Add: Total Fixed cost				7026.34
Total cost for 88,000 kms:			12561.54