Exercise 1-8 Cost Behavior; High-Low Method [LO1-4, LO1-5] Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 135,000 kilometers during a year, the average operating cost is 14.5 cents per kilometer. If a truck is driven only 90,000 kilometers during a year, the average operating cost increases to 18.1 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. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places and Fixed cost answer to nearest whole dollar amount.)

Required:

1.

Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places and Fixed cost answer to nearest whole dollar amount.)

	Kilometers	Total Annual
	Driven	Cost
High level of activity	135,000
Low level of activity	90,000
Change	45,000	$0
Variable cost per kilometer		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 112,000 kilometers during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations.)

	Total annual cost: