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EXERCISE 6-5 Applying the High-Low Method; Predicting Cost [LO2 - CC7, 9] Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 114,800 kilometres during a year, the average operating cost is 12.5 cents per kilometre. If a truck is driven only 70,000 kilometres during a year, the average operating cost increases to 14.5 cents per kilometre. (The Singapore dollar is the currency used in Singapore.) Note: In your computations, please do not round the decimal places of cost per kilometre. Required: 1. Using the high-low method estimate the variable and fixed cost elements of the annual cost of truck operation. 2. Express the variable and fixed costs in the form Y- a + bx 3. If a truck were driven 80.000 kilometres during a year, what total cost would you expect to be incurred? B 1 Exercise 6-5 D E F G H 1 Kilometres Driven 2 3 Total Annual Cost High level of activity Low level of activity Change Fixed cost per year: Total cost Less variable portion Fixed cost per year 4 5 6 7 8 9 10 11 12 13 14 15 16 2 17 18 19 3 20 21 22 23 24 25 26 27 28 29 20 31 32 33 34 35 36 Fixed cost Variable cost Total annual cost