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Item 9

Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 162,000 kilometers during a year, the average operating cost is 13.2 cents per kilometer. If a truck is driven only 108,000 kilometers during a year, the average operating cost increases to 16.6 cents per kilometer.

Required:

1. Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks.

2. Express the variable and fixed costs in the form Y = a + bX.

3. If a truck were driven 135,000 kilometers during a year, what total operating cost would you expect to be incurred?

• Required 2
• Required 3

Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.)

1-

Variable cost		per kilometer
Fixed cost		per year

2

Express the variable and fixed costs in the form Y = a + bX. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.)

Y =

+

X

3-

If a truck were driven 135,000 kilometers during a year, what total operating cost would you expect to be incurred? (Do not round intermediate calculations.)

Total annual cost