Question
Hoi Chong Transport, Ltd, operates a fleet of delivery trucks in Singapore The company has determined that if a truck is driven 110,000 kilometers during a year, the average operating cost is 10.60 cents per kilometer. If a truck is driven only 63,000 kilometers during a year, the average operating cost increases to 14 40 cents per kilometer (The Singapore dollar is the currency used in Singapore ) Requirement 1: Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation. (Round the variable cost per kilometer to 3 decimal places and the fixed cost to the nearest dollar amount. Omit the "$" sign in your response.) Variable cost per kilometen Fixed cost per year Requirement 2: the form Y-a+ bX (Round the variable cost per kilometer to
Explanation / Answer
Answer: Requirement 1:
Change in variable cost per unit=Change in cost/Change in units
=(11660-9072)/(110000-63000)
=2588/47000 Km
=5.506 cents per Km
Fixed cost=Total cost-Variable cost
=11660-(110000*5.506/100)
=11660-6056.6
=5603.4
Variable cost per Km=$6056.6
Fixed cost=$5603.4
Answer:Requirement2
y=$5603.4+$(5.506/100)X
Answer: Requirement 3:
Total annual cost=$5603.4+$(5.506/100)*97000 Km
=10944.22