Friday, 26 September 2014

Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company’s cost analyst has determined that if a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile. If a truck is driven only 98,000 miles during a year, the average operating cost increases to 9.6 cents per mile.

Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company’s cost analyst has determined that if a truck is driven 147,000 miles during a year, the average operating cost is 8.7 cents per mile. If a truck is driven only 98,000 miles during a year, the average operating cost increases to 9.6 cents per mile.

Required:
1.
Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

     
  Variable cost $   per mile
  Fixed cost $   per year


2.
Express the variable and fixed costs in the form Y = a + bX. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

  Y  = $  + $  X

3.
If a truck were driven 122,000  miles during a year, what total cost would you expect to be incurred? (Round the "Variable cost per mile" to 3 decimal places. Round your intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

  Total annual cost $  


Explanation: