Question

Rio Bus Tours has incurred the following bus maintenance costs during the recent tourist season. (The real is Brazil’s national monetary unit. On the day this exercise was written, the real was equivalent in value to .269 U.S. dollar.)

Month	Miles Traveled by Tour Buses		Cost
November	14,400		18,200		real
December	17,000		18,500
January	19,600		18,650
February	23,600		19,100
March	31,100		20,300
April	13,100		17,600

Required:

1. Use the high-low method to estimate the variable cost per tour mile traveled and the fixed cost per month.

2. Develop a formula to express the cost behavior exhibited by the company’s maintenance cost.

3. Predict the level of maintenance cost that would be incurred during a month when 40,000 tour miles are driven.

Answer 1