Question

Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 105,000 kilometers during a year, the average operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers during a year, the average operating cost increases to 13.4 cents per kilometer.(The Singapore dollar is the currency used in Singapore.)
Requirement 1:
Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation. (Round the variable cost per kilometer to 3 decimal places. Omit the "$" sign in your response.)
Variable cost per kilometer $
Fixed cost per year $
Requirement 2:
Express the variable and fixed costs in the form Y = a + bX. (Round the variable cost per kilometer to 3 decimal places. Omit the "$" sign in your response.)
Y = $ + $ X
Requirement 3:
If a truck were driven 80,000 kilometers during a year, what total cost would you expect to be incurred? (Omit the "$" sign in your response.)
Total annual cost $
Work done so far:
HIGH :11.4 * 105,000 = 1,197,000
LOW: 13.4 * 70,000 = 938,000
Total Variable cost = 105,000 * 7.4 = 777,000
Fixed cost = 1,197,000 - 777,000 = 420,000
What am I doing wrong ? This is incorrect so far starting at the variable cost and fixed cost

Answer 1

Answer:

1) variable cost per kilometer = (11,970 - 9,380) / (105,000 - 70,000) = 2,590 / 35,000 = 0.074 per kilometer

fixed costs = 11,970 - (105,000 x 0.074) = 11,970 - 7,770 = 4,200

2) Y = 4,200 + 0.074X

3) Y = 4,200 + (0.074 x 80,000) = 10,120

Explanation:

You couldn't get the answers right because you forgot that 11.4 represents cents, not dollars.