Kaitly woo owner of Flower ParadiseFlower Paradise operates

Kaitly woo owner of

Flower ParadiseFlower Paradise,

operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee,

WooWoo

wants to set the delivery fee based on the distance driven to deliver the flowers.

WooWoo

wants to separate the fixed and variable portions of

herher

van operating costs so that

sheshe

has a better idea how delivery distance affects these costs.

SheShe

has the following data from the past seven months:

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(Click the icon to view the data.)Use the high-low method to determine

Flower ParadiseFlower Paradise\'s

cost equation for van operating costs. Use your results to predict van operating costs at a volume of

15 comma 00015,000

miles.

Let\'s begin by determining the formula that is used to calculate the variable cost (slope).

Change in cost

/

Change in volume

=

Variable cost (slope)

Now determine the formula that is used to calculate the fixed cost component.

Total operating cost

-

Total variable cost

=

Fixed cost

Use the high-low method to determine

Flower ParadiseFlower Paradise\'s

operating cost equation. (Round the variable cost to the nearest cent and the fixed cost to the nearest whole dollar.)

y = $

x + $

Enter any number in the edit fields and then click Check Answer.

Data Table

Month

Miles Driven

Van Operating Costs

January. . . . . . . . . . . . . . .

15,500

$5,390

February. . . . . . . . . . . . . . .

17,400

$5,280

March. . . . . . . . . . . . . . . . .

15,400

$4,960

April. . . . . . . . . . . . . . . .

16,300

$5,340

May. . . . . . . . . . . . . . . .

16,500

$5,450

June. . . . . . . . . . . . . . . .

15,200

$5,230

July. . . . . . . . . . . . . . . . . . .

14,400

$4,680

Change in cost

/

Change in volume

=

Variable cost (slope)

Solution

Answer

High-Low Method

As we can see that in February month the Miles driven is Highest and In July Month the miles driven is least.

Miles

Operating cost

February

17,400

5,280

July

14,400

4,680

Difference

3,000

600

Variable cost = (High Cost – Low Cost) / (High miles – Low miles)

= (5,280 – 4,680) / (17,400 – 14,400)

Variable cost = $0.2 per Mile

2.

Fixed Cost = Total Cost – Variable cost

Lets take February month, Total Cost = $5,280, Miles = 17,400

Fixed Cost = $5,280 – (17,400 Miles * $0.2 per mile)

Fixed Cost = $1,800

3.

Equation

Total Cost = Variable Cost + Fixed Cost

Total Cost = (Miles Driven * Variable cost per mile) + Fixed Cost

Y = $0.2x + $1,800

x = No. of Miles Driven

y = Total Cost

4.

Expected Cost at 15,000 miles

= ($0.2 * miles) + $1,800

= ($0.2 * 15,000 Miles) + $1,800

Expected Cost for 15,000 Miles = $4,800

	Miles	Operating cost
February	17,400	5,280
July	14,400	4,680
Difference	3,000	600