Question

Deliveries Are Us Company wants to determine a fuel surcharge to add to its​ customers' bills based on the number of miles driven to each area. It wants to separate the fixed and variable portion of the​ company's operating costs so it has a better idea of how distance affects these costs. The Company has the following data available.

Month	Miles driven	Total operating costs
January	​16,200	​$22,650
February	​17,000	​$23,250
March	​20,000	​$25,000
April	​16,500	​$22,875
May	​17,400	​$23,550
June	​15,000	​$21,000

Using the

high−low

​method, the fixed costs in a month are​ (Round any intermediary calculations to the nearest​ cent.)

A.

​$4,000

B.

​$46,000

C.

​$16,000

D.

​$9,000

Answer 1

Answer: D.$ 9,000

Working:

	Miles driven	Total operating costs
	16200	$                 22,650
	17000	$                 23,250
	20000	$                 25,000
	16500	$                 22,875
	17400	$                 23,550
	15000	$                 21,000
High	20000	$                 25,000
Low	15000	$                 21,000
Change	5000	$                    4,000

Variable cost per unit = $ 4,000/5000 = $ 0.80

Total cost = Fixed cost + Variable cost

$ 25,000 = Fixed cost + ($ 0.80*20000)

Fixed cost = $ 25,000-$ 16,000 = $ 9,000