Question

Joyce Murphy runs a courier service in downtown Seattle. She charges clients $0.62 per mile driven. Joyce has determined that if she drives 2,900 miles in a month, her total operating cost is $950. If she drives 4,000 miles in a month, her total operating cost is $1,192. Required:1. Using the high-low method, determine Joyce’s variable and fixed operating cost components.

Answer 1

Answer:

Variable cost per mile = 0.22 per mile

Total fixed cost = $312

Explanation:

If she drives 2,900 miles then,

Total operating cost = $950

If she drives 4,000 miles then,

Total operating cost = $1,192

Using high low method,

variable cost per mile:

$=\frac{(1,192-950)}{(4,000-2,900)}$

$=\frac{242}{1,100}$

= 0.22 per mile

Hence,

Total fixed cost = 1,192 - (4,000 × 0.22)

                          = 1,192 - 880

                          = $312