Question 1

12 Marks HL Transport operates a fleet of delivery trucks in Pretoria. The company has determined that if a truck is driven 105,000 kilometres during a year, the average operating cost is 11.4 cents per kilometre. If a truck is driven only 70,000 kilometres during a year, the average operating cost increases to 13.4 cents per kilometre. Required: 1.1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation. (6) 1.2. Express the variable and fixed costs in the form Y =a + bX. (2) 1.3. If a truck were driven 80,000 kilometres during a year, what total cost would you expect to be incurred? (4