Melody Leigh, owner of Broadway Floral, operates a local chain of floral shops.

Question

Melody Leigh, owner of Broadway Floral, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Leigh wants to set the delivery fee based on the distance driven to deliver the flowers Leigh wants to separate the fixed and variable portions of her van operating costs so that she has a better idea of how delivery distance affects these costs. She has the following data from the past seven months: Van Operating Month Miles Driven January Februar March April May June July Costs 15,500 17,400 15,400 16,300 16,500 15,200 14,400 $5,390 $5,280 $4,960 $5,340 $5,450 $5,230 $4,680

Explanation / Answer

Melody Leigh Month Miles Driven Cost Jan 15500 $                5,390.00 Feb 17400 $                5,280.00 Mar 15400 $                4,960.00 April 16300 $                5,340.00 May 16500 $                5,450.00 June 15200 $                5,230.00 July 14400 $                4,680.00 Miles Driven Total Cost High Level of Activity(A) 17400 $                5,280.00 Low Level of Activity(B) 14400 $                4,680.00 Change(A)-(B) 3000 $                    600.00 Variable cost per unit=(600/3000)= $                                0.20 Variable cost per Miles Driven=Total Cost change/Change in miles driven Variable cost per Miles Driven= $                                0.20 Total Cost at High level of activity=(A) $                        5,280.00 Variable cost (17400*.20)=(B) $                        3,480.00 Fixed Cost(A)-(B) $                        1,800.00

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