Reference no: EM132500298

Prompt 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 121,000 kilometres during a year, the average operating cost is 12.0 cents ($0.120) per kilometre. If a truck is driven only 81,000 kilometres during a year, the average operating cost increases to 16.0 cents ($0.160) per kilometre.

Required:

Question 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of operating a truck if it is driven 121,000 kms. (Round intermediate values to 3 decimal places.)

Question 2. Express the variable and fixed costs in the form Y = a + bX. (Round "Variable cost per kilometre" answer to 3 decimal places.)

Question 3. If a truck was driven 101,000 kilometres during a year, what total cost would you expect to be incurred? (Round intermediate values to 3 decimal places.)