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Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company’s cost analyst has determined that if a truck is driven 120,000 miles during a year, the average operating cost is 11.6 cents per mile. If a truck is driven only 80,000 miles during a year, the average operating cost increases to 13.6 cents per mile.

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 per mile” to 3 decimal places and the “Fixed cost” to the nearest dollar amount. Omit the “\$” sign in your response.)

Variable cost \$ per mile

Fixed cost \$ per year

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2. Express the variable and fixed costs in the form Y = a + bX. (Round the “Variable cost per mile” to 3 decimal places and the “Fixed cost” to the nearest dollar amount. Omit the “\$” sign in your response.)

Y = \$ + \$ X

3. If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred? (Round the “Variable cost per mile” to 3 decimal places. Round your intermediate and final answers to the nearest dollar amount. Omit the “\$” sign in your response.)

Total annual cost \$