Task: Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company’s cost analyst has determined that if a truck is driven 138,000 miles during a year, the average operating cost is 14.8 cents per mile. If a truck is driven only 92,000 miles during a year, the average operating cost increases to 18.6 cents per mile.
Required:
Q1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation.
Q2. Express the variable and fixed costs in the form Y = a + bX.
Q3. If a truck were driven 115,000 miles during a year, what total cost would you expect to be incurred.