Hoi Chong Transport, Limited, operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 93,000 kilometers during a year, the average operating cost is 9.2 cents per kilometer. If a truck is driven only 62,000 kilometers during a year, the average operating cost increases to 9.9 cents per kilometer.

Required:

1. Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks.

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

3. If a truck were driven 77,500 kilometers during a year, what total operating cost would you expect to be incurred?

Topper Sports, Incorporated, produces high-quality sports equipment. The companys Racket Division manufactures three tennis racketsthe Standard, the Deluxe, and the Prothat are widely used in amateur play. Selected information on the rackets is given below:

	Standard	Deluxe	Pro
Selling price per racket	$ 45.00	$ 70.00	$ 100.00
Variable expenses per racket:
Production	$ 27.00	$ 35.00	$ 36.00
Selling (5% of selling price)	$ 2.25	$ 3.50	$ 5.00

All sales are made through the companys own retail outlets. The Racket Division has the following fixed costs:

	Per Month
Fixed production costs	$ 138,000
Advertising expense	118,000
Administrative salaries	68,000
Total	$ 324,000

Sales, in units, over the past two months have been as follows:

	Standard	Deluxe	Pro	Total
April	2,000	1,000	5,000	8,000
May	8,000	1,000	3,000	12,000

Required:

1-a. Prepare contribution format income statements for April.

1-b. Prepare contribution format income statements for May.

3. Compute the Racket Divisions break-even point in dollar sales for April.

4. Would the break-even point be higher or lower with Mays sales mix than with Aprils sales mix?

5. Assume that sales of the Standard racket increase by $21,800. What would be the effect on net operating income? What would be the effect if Pro racket sales increased by $21,800? Do not prepare income statements; use the incremental analysis approach in determining your answer.