Explanation:
The computation of the fixed cost and the variable cost per hour by using high low method is shown below:
Variable cost per hour = (High Operating cost - low operating cost) ÷ (High driven in kilometers - Low driven in kilometers)
where,
High operating cost = 114,000 km × 12.7%
= $14,478
Low operating cost = 76,000 km × 14.8%
= $11,248
So,
= ($14,478 - $11,248) ÷ (114,000 km - 76,000 km)
= $3,230 ÷ 38,000 km
= $0.085 per km
Now the fixed cost equal to
= High operating cost - (High driven in kilometers × Variable cost per km)
= $14,478 - (114,000 km × $0.085)
= $14,478 - $9,690
= $4,7882
2. The equation is as follows
Y = a + bx
So,
Total cost = $4,788 + 0.085X
3.
Y = a + bx
= $4,788 + 0.085 × 95,000
= $4,788 + $8,075
= $12,863
