Really Fast Delivery Services has the collected the following information about operating expenditures for its delivery truck fleet for the past five years: YEAR Miles Operating Costs

YEAR Miles Operating Costs

2013 55000 195000

2014 70000 210000

2015 50000 180000

2016 65000 205000

2017 85000 225150

What is the best estimate of total operating expenses for 2018 using the high-low method based on total expected miles of 60,000?

A. $192,900

B. $195,000

C. $196,000

D. $201,000

A. $192,900

Explanation:

In order to compute the total operating expenses for 2018, first, we have to calculate the variable cost per miles and the fixed cost which is shown below:

Variable cost per miles = (High Operating cost - low operating cost) : (High miles - low miles)

= ($225,150 - $180,000) : (85,000 miles - 50,000 miles)

= $45,150 : 35,000 miles

= $1.29 per miles

Now the fixed cost equal to

= High operating cost - (High miles * Variable cost per miles)

= $225,150 - (85,000 miles * $1.29)

= $225,150 - $109,650

= $115,500

Now the estimated operating expenses would be

= Fixed cost + expected miles * variable cost per miles

= $115,500 + 60,000 * 1.29

= $115,500 + $77,400

= $192,900