Question

Kaitlyn Coughlin​, owner of Flower Hour​, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery​ fee, Coughlin wants to set the delivery fee based on the distance driven to deliver the flowers. Coughlin wants to separate the fixed and variable portions of her van operating costs so that she has a better idea how delivery distance affects these costs. She has the following data from the past seven​ months:

Use the high-low method to determine Flower Hour's cost equation for van operating costs. Use your results to predict van operating costs at a volume of 16,500 miles.

Month	Miles Driven	Van Operating Costs
January	15,500	$5,400
February	17,500	$5,350
March	14,400	$4,980
April	16,400	$5,280
May	16,900	$5,580
June	15,300	$5,010
July	13,500	$4,590

Answer 1

Answer:

Determination of flower hour's cost equation for van operating costs using high-low method:

Variable cost = (Operating costs for highest miles drive - Operating cost for lowest miles drive) / Highest miles    drive - Lowest miles drive)

= ($5,350 - $4,590) / (17,500 - 13,500)

= $760 / 4,000

= $0.19 per miles drive

Fixed costs = Total operating costs for highest miles driven - (Highest miles driven x Variable costs per miles)

= $5,350 - (17,500 x $0.19)

= $2,025

Flower hour's cost equation:

Van operating costs

=

$2,025

+

($0.19

x

No. of miles driven)

Prediction of van operating costs at a volume of 16,500 miles:

Van operating costs = $2,025 + (16,500 x $0.19)

= $5,160