Reliable Movers Inc. documented the miles driven and total moving van costs for
ID: 2527499 • Letter: R
Question
Reliable Movers Inc. documented the miles driven and total moving van costs for the past five months as follows:
Number of miles
Total vehicle costs
January
3,000
$4,800
February
3,500
5,200
March
5,000
6,100
April
4,000
5,000
May
6,000
6,000
In order to budget total vehicle costs for the upcoming summer months, Reliable wishes to estimate total vehicle costs using the high/low method.
Required:
A.
What is the equation to predict estimated total vehicle costs? (4 points)
B.
How much does fixed cost amount to? (4 points)
C. If the company expects to drive 9,000 miles in June, what will be the estimated total vehicle costs? (4 points)
Number of miles
Total vehicle costs
January
3,000
$4,800
February
3,500
5,200
March
5,000
6,100
April
4,000
5,000
May
6,000
6,000
Explanation / Answer
Variable cost per mile = Change in cost/Change in mile
= (6000-4800)/(6000-3000)
Variable cost per mile = 0.40 per mile
Fixed cost = Total cost-variable cost = 6000-(6000*.40) = 3600
a) Equation :
Y = a+bx
Y = 3600+0.40X
b) Fixed cost = 3600
c) Total cost on 9000 mile = (9000*.40+3600) = 7200