Chapter 6, Problem 6.47BE

Continuation of E6-46B: High-low method (Learning Objective 4)

Refer to Lotta’s Fourth Street Floral data in E6-46B. Use the high-low method to determine the company’s cost equation for van operating costs. Use your results to predict van operating costs at a volume of 15,500 miles.

Tammy Lotta, owner of Fourth Street Floral, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Lotta wants to set the delivery fee based on the distance driven to deliver the flowers. Lotta wants to separate the fixed and variable portions of her van operating costs so that she has a better idea of how delivery distance affects these costs. She has the following data from the past seven months:

Month	Miles Driven	Van Operating Costs
January	15,800	$5,460
February	17,300	$5,680
March	14,600	$4,940
April	16,000	$5,310
May	17,100	$5,830
June	15,400	$5,420
July	14,100	$4,880