Question

Really Fast Delivery Services has collected the following information about operating expenditures for its delivery truck fleet for the past five years: Year Miles Operating Costs 2013 110,000 $390,000 2014 140,000 $420,000 2015 100,000 $360,000 2016 130,000 $410,000 2017 170,000 $450,000 What is the best estimate of total operating expenses for 2018 using the high-low method based on total expected miles of 120,000? (Round up to dollar, and choose the closest number.)

Answer 1

Answer- Estimated of total operating expense for 2018 using high-low method based on total expected miles of 120,000 is $385,725.

Explanation-

High-Low Method

Total cost at highest activity level = $450,000

Total cost at lowest activity level = $360,000

Total units at highest activity level = 170,000 miles

Total units at lowest activity level = 100,000 miles.

variable cost per unit= ($450,000-360,000)/(170,000-100,000)

=$90,000 / 70,000

=1.2857143

Now, In year 2015, units = $100,000.

Then variable cost = $1.28571.43*100,000

=$128571 round of to nearest doller.

Accordingly, Fixed cost = $360,000 - 128571

= $231,439.

Now calculation of estimated total Operating expense for 2018 at 120,000 miles.

Total cost = Fixed cost + Variable Cost

= $231,439 + (120,000*1.2857143)

=$231,439 + 154286

= $385725. Rounded off to nearest doller.

Hence, Answer = $ 385,725.