Question

Rio 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 269 U.S. dollar) Traveled by Month November cost 18,500 real 8 02:57,05 January Tebruary 14,850 17,300 19.750 23.900 31,400 13.400 18,950 19.400 April 17,900 Required: 1. Use the high-low method to estimate the variable cost per tour mile traveled and the fixed cost per month 2. Develop a formula to express the cost behavior exhibited by the company's maintenance cost. 3. Predict the level of maintenance cost that would be incurred during a month when 43,000 tour miles are driven Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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.)

Answer 1

1) Using High-Low Method: Particulars High Low Maintenance Miles cost (real) 31,400 20,150 13,400 17,900 18,000 2,250 (31400 - 13400) (20150 - 17900) Difference Variable Cost per mile (real) 0.125 (Difference in cost / Difference in miles = 2250 / 18000 = 0.125) When miles travelled is 31400, Maintenance cost (real) Less: Variable costs Fixed maintenance costs 20,150 (3,925) 16,225 When miles travelled is 13400, Maintenance cost (real) 17,900 Less: Variable costs (1,675) Fixed maintenance costs 16,225 [31400 x 0.125] (13400 x 0.125]

2) Maintenance cost per month = Fixed maintenance cost + (Variable cost mile x No. of miles) Therefore, Total Maintenance cost (real) = 16225 real + 0.125 real X Number of tour miles Variable mainteance cost / mile Total variable maintenance costs Add: Fixed maintenance costs Estimated maintenance costs 43,000 0.125 real 5,375 [43000 x 0.125] 16,225 real 21,600 real