Question

Month	Miles Driven	Van Operating Costs
January. . . . . . . . . . . . .	15,900	$5,430
February. . . . . . . . . . . . . . . . .	17,300	$5,740
March. . . . . . . . . . . . . . .	14,600	$4,940
April. . . . . . . . . . . . . . . .	16,300	$5,270
May. . . . . . . . . . . . . . . . . . . . .	17,200	$5,820
June. . . . . . . . . . . . . . . . . . . . .	15,200	$5,400
July. . . . . . . . . . . . . . . .	14,300	$4,990

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

/

=

Variable cost (slope)

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

-

=

Fixed cost

Use the? high-low method to determine

Flowers 4 YouFlowers 4 You?'s

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

y = $

x + $

Use the operating cost equation you determined above to predict van operating costs at a volume of

16 comma 00016,000

miles.

The operating costs at a volume of 16,000 miles is $

.

Answer 1

Using the High Low Method:
	Miles Driven	Expenses
Cost Driver - Highest - Feb	17,300.00	5,740.00
Cost Driver - Lowest - July	14,300.00	4,990.00
Difference	3,000.00	750.00
Variable Cost (Slope) = Change in Cost / Change in Volume
Variable Cost (Slope) = $750 / 3,000 Miles
Variable Cost (Slope) = $0.25 per mile
Fixed Cost = Total Cost - Total Variable Costs
Fixed Cost = $5,740 - ($0.25 X 17,300 Miles)
Fixed Cost = $1,415
The linear equation as Per High Low Method:
Y = $0.25 x + $1,415
Operating Cost - 16,000 Miles = $0.25 X 16,000 Miles + $1,415
Operating Cost - 16,000 Miles = $4,000 + $1,415
Operating Cost - 16,000 Miles = $5,415