Question

Brazilia Bus Tours has incurred the following bus maintenance costs during the recent tourist season. (The real is Brazil’s national monetary unit. On the day this exercise was written, the real was equivalent in value to .5092 U.S. dollar.)

Month	Miles Traveled by Tour Buses		Maintenance Cost
November	14,850		20,150 real
December	17,300		18,800
January	19,750		18,950
February	23,900		19,400
March	31,400		20,150
April	13,400		17,900

Required:

1.	Use the high-low method to estimate the variable cost per tour mile traveled and the fixed cost per month. (Round "Variable cost per tour mile" to 3 decimal places.)

      

	Variable cost per tour mile real Fixed cost per month real

2.	Develop a formula to express the cost behavior exhibited by the company’s maintenance cost. (Round "Variable cost per tour mile" to 3 decimal places.)

      

	Variable cost per tour mile real Fixed cost per month real

3.	Predict the level of maintenance cost that would be incurred during a month when 43,000 tour miles are driven.

     

	Maintenance cost real

     

Answer 1

1) Variable cost per tour mile = (20150-17900)/(31400-13400) = 0.125 per real

Fixed cost = 20150-(31400*.125) = $16225

2) Y = a+bx

Y = 16225+0.125X

3) Maintenance cost = (43000*.125)+16225 = $21600