Exercise 5A-3 Cost Behavior; High-Low Method [LO5-10] Hol Chong Transport. Ltd,
ID: 2330759 • Letter: E
Question
Exercise 5A-3 Cost Behavior; High-Low Method [LO5-10] Hol Chong Transport. Ltd, operates a neet of delivery trucks in Singapore. The company has determined that if a truck is dnven 141000 kilometers during a year, the average operating cost is 12.1 cents per kilometer. If a truck is driven only 94,000 kilometers during a year, the average operating cost increases to 14.6 cents per kilometer Required: 1 Using the high-low method. estimate the variable operating cost per kilometer and the annual fixed the fleet of trucks. 2 Express the varlable and foxed costs in the form Y-a bX 3. If a truck were driven 117,000 kilometers during a year what total operating cost would you expect to be operating cost associated with incurred? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required using the high-low method, estimate the variable operating cost per kilometer and the annual fioxed operating cost associated with the fleet of trucks. (Do not round your intermediate calculations. Round the Variable cest per kilometer to 3 decimal places) Variable cost Fond con per kilometer Required 2 Type here to searchExplanation / Answer
Required 1
Total cost if the truck is driven 141,000 kilometers = 141,000 kilometers * 12.1 cents per kilometer
= 1,706,100
Total cost if the truck is driven 94,000 kilometers = 94,000 kilometers * 14.6 cents per kilometer
= 1,372,400
Difference in total cost = 1,706,100 - 1,372,400 = 333,700
Difference in kilometers = 141,000 - 94,000 = 47,000
Variable cost per kilometer = 333,700 / 47,000 = 7.1
Fixed cost = Total cost - (Variable cost per kilometer * Number of kilometers)
= 1,706,100 - (7.1 * 141,000)
= 705,000
2.
Total cost(Y) = Fixed cost(A) + Variable cost per kilometer(B) * Number of kilometers(X)
Y = 705,000 + 7.1X
3.
Total operating cost(Y) = Fixed cost(A) + Variable cost per kilometer(B) * Number of kilometers(X)
= 705,000 + (7.1*117,000)
= 1,535,700
Variable cost 7.1 per kilometer Fixed cost 705,000 per year