Question

Kerri Woo, owner of Flower Petal, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Woo wants to set the delivery fee based on the distance driven to deliver the flowers. Woo wants to separate the food and variable portions of her van operating costs so that she has a better idea how delivery distance affects thes 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 Flower Petal's cost equation for van operating costs. Use your results to predict van operating costs at a volume of 16,000 miles Let's begin by determining the formula that is used to calculate the variable cost (ope). J. Variable cost (slope) Now determine the formula that is used to calculate the foxed cost component - Fedot Use the high-low method to determine Flower Petal's operating cost equation (Round the variable cost to the nearest cent and the fed cost to the nearest whole dollar yos a xos Use the operating cost equation you determined above to predict van operating costs at a volume of 16,000 miles The operating costs at a volume of 16,000 miles iss

Answer 1

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

= (5,740 - 4,990)/(17,300 - 14,300)

= 750/3,000

= $0.25

Fixed costs = Highest activity cost - (Highest activity x Variable cost per mile)

= 5,740 - (17,300 x 0.25)

= 5,740 - 4,325

= $1,415

y = $0.25x + $1,415

Total operating costs at a volume of 16,000 miles = $0.25x + $1,415

= $0.25 * 16,000 + 1,415

= 4,000 + 1,415

= $5,415

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