Question

Kaitly woo owner of

Flower ParadiseFlower Paradise​,

operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery​ fee,

WooWoo

wants to set the delivery fee based on the distance driven to deliver the flowers.

WooWoo

wants to separate the fixed and variable portions of

herher

van operating costs so that

sheshe

has a better idea how delivery distance affects these costs.

SheShe

has the following data from the past seven​ months:

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​(Click the icon to view the​ data.)Use the​ high-low method to determine

Flower ParadiseFlower Paradise​'s

cost equation for van operating costs. Use your results to predict van operating costs at a volume of

15 comma 00015,000

miles.

​Let's begin by determining the formula that is used to calculate the variable cost​ (slope).

Change in cost

/

Change in volume

=

Variable cost (slope)

Now determine the formula that is used to calculate the fixed cost component.

Total operating cost

-

Total variable cost

=

Fixed cost

Use the​ high-low method to determine

Flower ParadiseFlower Paradise​'s

operating cost equation. ​(Round the variable cost to the nearest cent and the fixed cost to the nearest whole​ dollar.)

y = $

x + $

Enter any number in the edit fields and then click Check Answer.

Data Table

Month	Miles Driven	Van Operating Costs
January. . . . . . . . . . . . . . .	15,500	$5,390
February. . . . . . . . . . . . . . .	17,400	$5,280
March. . . . . . . . . . . . . . . . .	15,400	$4,960
April. . . . . . . . . . . . . . . .	16,300	$5,340
May. . . . . . . . . . . . . . . .	16,500	$5,450
June. . . . . . . . . . . . . . . .	15,200	$5,230
July. . . . . . . . . . . . . . . . . . .	14,400	$4,680

Answer 1

Answer

High-Low Method

As we can see that in February month the Miles driven is Highest and In July Month the miles driven is least.

	Miles	Operating cost
February	17,400	5,280
July	14,400	4,680
Difference	3,000	600

Variable cost = (High Cost – Low Cost) / (High miles – Low miles)

= (5,280 – 4,680) / (17,400 – 14,400)

Variable cost = $0.2 per Mile

2.

Fixed Cost = Total Cost – Variable cost

Lets take February month, Total Cost = $5,280, Miles = 17,400

Fixed Cost = $5,280 – (17,400 Miles * $0.2 per mile)

Fixed Cost = $1,800

3.

Equation

Total Cost = Variable Cost + Fixed Cost

Total Cost = (Miles Driven * Variable cost per mile) + Fixed Cost

Y = $0.2x + $1,800

x = No. of Miles Driven

y = Total Cost

4.

Expected Cost at 15,000 miles

= ($0.2 * miles) + $1,800

= ($0.2 * 15,000 Miles) + $1,800

Expected Cost for 15,000 Miles = $4,800