Question One

High-Low Method, HighLow Method, Cost Formulas (LO 3)

During the past year, the high and low use of three different resources for Wilson Trucking occurred in July and April.

The resources are truck depreciation, fuel, and truck maintenance.

The number of kilometres travelled is the driver. The total costs of the three resources and the related number of truck kilometres are as follows:

Resource Truck Kilometres Total Cost ($)

Truck depreciation:

High 46,000,000 2,800,000

Low 32,400,000 2,800,000

Fuel:

High 46,000,000 1,610,000

Low 32,400,000 1,134,000

Truck maintenance:

High 46,000,000 1,797,200

Low 32,400,000 1,413,680

Required:

Use the high-low method to answer the following questions.

1. What is the variable rate for truck depreciation? The fixed cost?
2. What is the cost formula for truck depreciation?
3. What is the variable rate for fuel? The fixed cost?
4. What is the cost formula for fuel?
5. What is the variable rate for truck maintenance? The fixed cost?
6. What is the cost formula for truck maintenance?
7. Using the three costs formulas that you developed, predict the cost of each resource in a month with 36,000.000 kilometres travelled.
8. Describe the difference between a fixed cost and a variable cost.