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 126,000 miles during a year, the average operating cost is 13.3 cents per mile. If a truck is driven only 84,000 miles during a year, the average operating cost increases to 15.5 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 |
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 105,000 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 |
$ |