Question:
Hoi Chong Transport, Ltd; operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 105,000 kilometers during a year, the average operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 kilometers during a year, the average operating cost increases to 13.4 cents per kilometer. (The Singapore dollar is the currency used in Singapore.)
Required:
1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation.
2. Express the variable and fixed costs in the form Y = a + bX.
3. If a truck were driven 80,000 kilometers during a year, what total cost would you expect to be incurred?