Answer:
Y=4200+0.074X
At activity level of 80,000 kilometers total cost is $10,120
Explanation:
Variable cost=(cost at higher activity-cost at lower activity level)/(vol. at higher activity level-vol. at lower activity level)
cost at higher activity level=105000*0.114=$11,970
cost at lower activity level=70000*$0.134=$9,380
variable cost=($11,970-$9,380)/(105,000-70,000)
=$0.074
The cost function is Y=a+bX
where Y is total cost
a is fixed cost
b is the variable cost
X is the volume of output at a particular level of output
by substituting variable cost at higher activity level of 105000 units
$11,970=a+($0.074*105000)
$11,970=a+$7770
a=$11,970-$7,770
a=$4,200
Y=4200+0.074X
If 80,000 kilometers were driven during the year,the total cost is computed thus:
Y=$4200+($0.074*80000)
Y=$4200+$5920
Y=$10,120
