Question - A Transport, Ltd., operate a fleet of delivery trucks in Hong Kong. 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 Hong Kong dollar is the currency used in Hong Kong.)
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?