Cost Behavior; High-Low Method [LO3, LO4]

Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company’s cost analyst has determined that if a truck is driven 120,000 miles during a year, the average operating cost is 11.6 cents per mile. If a truck is driven only 80,000 miles during a year, the average operating cost increases to 13.6 cents per mile.

Required:

1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck ope ration.

2. Express the variable and fixed costs in the form Y = a + bX.

3. If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred?