Hoi Chong Transport Ltd operates a fleet of delivery trucks

Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 150,000 kilometres during a year, the average operating cost is 13.1 cents per kilometre. If a truck is driven only 75,000 kilometres during a year, the average operating cost increases to 15.0 cents per kilometre. (The Singapore dollar is the currency used in Singapore.)

Required:
1.
Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Round the \"Variable cost\" to 3 decimal places.)

Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The company has that if a truck is driven 150,000 kilometres during a year, the average operating cost is 13.1 cents per kilometre. If a truck is driven only 75,000 kilometres during a year, the average operating cost increases to 15.0 cents per kilometre. (The Singapore dollar is the currency used in Singapore.) Required 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Round the \"Variable cost\" to 3 decimal places.) Variable cost per kilometre Fixed cost per year 2. Express the variable and fixed costs in the form Y a+ bX. (Round the \"Variable cost\" to 3 decimal places.) 3. If a truck were driven 85,000 kilometres during a year, what total cost would you expect to be incurred? Round your intermediate calculations to 3 decimal places.) Total annual cost

Solution

Total cost at 150000 km=150000*0.131= $19650 Total cost at 75000 km=75000*0.15= $11250 1 Variable cost= (19650-11250)/(150000-75000)= 0.112 per kilometre Fixed cost= 19650-(150000*0.112)= $2850 2 Y = 2850+0.112X 3 Total annual cost = 2850+(85000*0.112)= $12370