Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 105,000 kilometres during a year, the average operating cost is 12.665 cents per kilometre. If a truck is driven only 70,000 kilometres during a year, the average operating cost increases to 14.5 cents per kilometre. (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 truck operation.

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

3. If a truck were driven 80,000 kilometres during a year, what total cost would you expect to be incurred?