Answer:
A. Variable cost per unit 0.075 per kilometer
Fixed cost $7,998
B. Y= 0.075 + 7,998X
Explanation:
A. Calculation to estimate the variable and fixed cost elements of the annual cost of the truck operation.
First step is to calculate the operating cost if the Truck is driven 129,000 kilometers during a year in which the average operating cost is 13.7 cents per kilometer
Operating cost= 129,000 x 13.7/100
Operating cost= $17,673
Second step is to calculate the operating cost if Truck is driven only 86,000 kilometers during a year in which the average operating cost increases to 16.8 cents per kilometer.
Operating cost = 86,000 x 16.8/100
Operating cost =$14,448
Calculation for VARIABLE COST PER UNIT using this formula
Variable cost per unit = (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)
Let plug in the formula
Variable cost per unit= $17,673-$14,448)/(129,000-86,000)
Variable cost per unit= 3,225/43,000
Variable cost per unit= 0.075 per kilometer
Calculation for FIXED COST using this formula
Fixed cost = Highest activity cost - Highest activity x Variable cost per kilometer
Let plug in the formula
Fixed cost= $17,673 - 129,000 x 0.075
Fixed cost= $17,673 -$9,675
Fixed cost=$7,998
Therefore the variable is 0.075 per kilometer and fixed cost elements of the annual cost of the truck operation is $7,998
B. Expression of the variable and fixed costs in the form Y = a + bX.
Y = a + bX
Y= 0.075 + 7,998X
Therefore the variable and fixed costs in the form Y = a + bX will be Y= 0.075 + 7,998X
