Question

2 value 4.00 points Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 162,000 kilometers during a year, the average operating cost is 13.2 cents per kilometer. If a truck is driven only 108,000 kilometers during a year, the average operating cost increases to 16.6 cents per kilometer at risk in this so Required 1 Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places and Fixed cost answer to nearest whole dollar amount) al duties in accor Annua Kilometers Driven High level of activity Change per kilometer cost per year

Answer 1

13.2 cents = $0.132

16.6 cents = $0.166

1.

	Kilometers driven	Total annual cost
High level of activity	162,000	$21,384 [ 162,000 km * $0.132 ]
Low level of activity	108,000	$17,928 [ 108,000 km * $0.166 ]
Change	54,000	$3,456

Variable cost per kilometer = Change in total annual cost / Change in kilometers driven = $3,456 / 54,000 km = $0.064 per kilometer

Now let us find out the fixed cost per year using the data of high level of activity

Total cost = Fixed cost per year + ( Variable cost per kilometer * Kilometers driven )

$21,384 = Fixed cost per year + ( 162,000 km * $0.064 )

$21,384 = Fixed cost per year + $10,368

Fixed cost per year = $21,384 - $10,368 = $11,016

2.

Y = a + bX

Here, Y = Total annual cost

a = Fixed cost per year

b = Variable cost per kilometer

X = Kilometers driven

So, the equation is as follows

Y = $11,016 + $0.064 * X

3.

Let us find out the total annual cost using the above formula, when the kilometers driven is 135,000 km

Y = $11,016 + $0.064 * 135,000

Y = $19,656

Thus, the total annual cost is $19,656