 Business
30 August, 19:32

# Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 114,000 kilometers during a year, the average operating cost is 12.7 cents per kilometer. If a truck is driven only 76,000 kilometers during a year, the average operating cost increases to 14.8 cents per kilometer.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.)2. Express the variable and fixed costs in the form Y = a + bX. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.)3. If a truck were driven 95,000 kilometers during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations.)

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1. 30 August, 20:27
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The computation of the fixed cost and the variable cost per hour by using high low method is shown below:

Variable cost per hour = (High Operating cost - low operating cost) : (High driven in kilometers - Low driven in kilometers)

where,

High operating cost = 114,000 km * 12.7%

= \$14,478

Low operating cost = 76,000 km * 14.8%

= \$11,248

So,

= (\$14,478 - \$11,248) : (114,000 km - 76,000 km)

= \$3,230 : 38,000 km

= \$0.085 per km

Now the fixed cost equal to

= High operating cost - (High driven in kilometers * Variable cost per km)

= \$14,478 - (114,000 km * \$0.085)

= \$14,478 - \$9,690

= \$4,7882

2. The equation is as follows

Y = a + bx

So,

Total cost = \$4,788 + 0.085X

3.

Y = a + bx

= \$4,788 + 0.085 * 95,000

= \$4,788 + \$8,075

= \$12,863