Exercise 2-8 Cost Behavior; High-Low Method [LO2-4, LO2-5]

Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 138,000 kilometers during a year, the average operating cost is 14.8 cents per kilometer. If a truck is driven only 92,000 kilometers during a year, the average operating cost increases to 18.6 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.)

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.)

3.	If a truck were driven 115,000 kilometers during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations.)

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