Unified Parcel, Inc. operates a local parcel delivery service. The company keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven 110,000 miles per year the operating cost is 7.5 cents per mile. This cost increases to 8.75 cents per mile if a truck is driven 60, 000 miles per year.

Required

Estimate the cost formula for the truck operating cost using the high-low method.

Total cost at high level of activity: 110,000 x $0.075 = $8,250

Total cost at low level of activity: 60,000 x $0.0875=$5250

What would be the operating cost of 90,000 mile?

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Activity Cost High $8.250 110.000 Low 60,000 5250 Change 50,000 3,000