Chapter 2, Problem 2.8E

Cost Behavior; High-Low Method [LO 2-4, LO 2-5]

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 7 the average operating cost increases to 13.4 cents per kilometer.

Required:

1. Using the high-low method. estimate the variable and fixed cost elements of the annual cost of the truck operation.
2. Express the variable and fixed costs in the form $Y=a+bX.$
3. If a truck were driven 80,000 kilometers during a year, what total cost would you expect to be incurred?