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The controller of the Javier Company is preparing the budget for 2018 and needs to estimate...

The controller of the Javier Company is preparing the budget for 2018 and needs to estimate a cost function for delivery costs. Information regarding delivery costs incurred in the prior two months are:

Months.   Miles Driven. Delivery Costs

August 11,000 $26,000

Sept 15,000 $34,000

Estimate the cost function for delivery.

Business   Accounting   
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Answer #1

Delivery Cost, Aug. = $26,000
Miles Driven, Aug. = 11,000
Delivery Cost, Sept. = $34,000
Miles Driven, Sept. = 15,000

Variable Cost per mile = (Delivery Cost, Sept. - Delivery Cost, Aug.) / (Miles Driven, Sept. - Miles Driven, Aug.)
Variable Cost per mile = ($34,000 - $26,000) / (15,000 - 11,000)
Variable Cost per mile = $8,000 / 4,000
Variable Cost per mile = $2.00

Fixed Cost = Delivery Cost, Sept. - Variable Cost per mile * Miles Driven, Sept.
Fixed Cost = $34,000 - $2.00 * 15,000
Fixed Cost = $4,000

Cost Formula for delivery = Variable Cost per mile * Number of miles driven + Fixed Cost
Cost Formula for delivery = $2.00 * Number of miles driven + $4,000

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