4. "On Time", a popular express delivery service in London, ON runs a fleet of express vans.The organization has been collecting cost information related to miles covered for the past year with the following results. Where a van is driven 105,000 kilometers during a year, the average operating cost is 11.4 cents per kilometer.However, when a van is driven only 70,000 kilometers during the year the average operating cost increases to 13.4 cents per kilometer.

(a) Her is an estimate for the variable and fixed cost elements of the annual cost of truck operation, using the high-low method. (2 marks)

Units Costs

High Level 105 000 km ( x 11.4 cents/km) $ 1 197 000

Low Level 70 000 km (x13.4 cents/km) $ 938 000

Change (-) 35 000 km (-) $ 259 000

(b) Express the variable and fixed costs in the form Y = a + b(X). (1 mark)

(c) Calculate the expected total cost of driving a van 90,000 kilometers during a year. (1 mark)