Question

1 Assume that a company operates a fleet of delivery trucks. If a truck is driven 80,000 miles during a year its average operating cost is 25 cents per mile If a truck is driven only 60,000 miles during the year, its average operating cost is 30 cents per mie. Using the high-low method, what would be the total estimated operating cost of a truck is driven 72,400 miles per year? Murple Choice O SC340 $1640 $40 O $19.840 50 of 10 il be here to search O no Р K B. IN M

Answer 1

Total cost at 80,000 miles @0.25 per mile:		20,000
Total cost at 60,000 miles @ 0.30 per mile:		18,000
			Total Cost	Miles driven
High activity		20,000		80,000
Low activity		18,000		60,000
Change			2,000		20,000
Variable cost per Mile= Change in Cost / Change in Miles
		2,000 /20,000 = 0.10 per mile
Total Fixed cost:
Total cost at 80,000 miles			20,000
Less: Variable cost (80,000 miles @0.10)		8,000
Total Fixed cost				12,000
Total Estimated cost of 72,400 miles
Variable cost (72,400 miles @0.10 per mile)	7,240
Add: Fixed cost				12,000
Total Estimated cost				19,240
Answer is $ 19,240