Question

Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 96,000 kilometers during a year, the average operating cost is 10.3 cents per kilometer. If a truck is driven only 64,000 kilometers during a year, the average operating cost increases to 11.5 cents per kilometer. Required: 1. Using the method discussed in the course packet for finding the fixed and variable parts of a mixed cost, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks. 2. Express the variable and fixed costs in the form Y = a + bx. 3. If a truck were driven 80,000 kilometers during a year, what total operating cost would you expect to be incurred? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.) Variable cost per kilometer per year Fixed cost - Required 1 Required 2 >

Answer 1

		Kilometers Driven	Total Annual Cost
	High level of activity	96,000	9,888
	Low level of activity	64,000	7,360
	Change	32,000	2,528
1	Variable Cost Per Kilometer	0.079
	Fixed Cost Per year	2304
2	Y = 2,304 + 0.079 X
3	Total Annual Cost	8,624
	Variable Cost Per Kilometer	6,320
	Fixed Cost Per year	2,304
		8,624