Problem: The owner/operator of Toledo Taxi Company is interested in determining the cost equation for his one-vehicle taxi service, based on the number of miles driven. To that end he has collected the following volume and cost data.
Total Number of
Month Operating Costs Miles Driven
July $16,000 13,000
August 17,800 14,250
September 12,400 9,750
October 15,100 12,500
November 13,250 10,500
December 11,500 9,000
Instructions:
(a) Use the high-low method to calculate the variable and fixed cost components.
(b) The owner feels that the maximum level of operating costs that the company can sustain, because of cash flow concerns, is $14,500. Determine the number of miles that correspond to that level of costs.