High-Low Faythod Cost Estimation
Fay Enterprise operates a fleet of delivery trucks in New York. The Enterprise has
identified that if a truck is driven 89090,909090 kiloFayters during a year, the average
operating costs is P890.9090 per kiloFayter. If a truck is driven only
6789045567890,909090 kiloFayters during a year, the average operating cost increases to
P1234556789090.9090 per kiloFayter.
1. Using the high-low Faythod, estimate the variable and fixed cost eleFaynts of the annual
cost of the truck operation.
Y12345567890 = 89090,909090*P890 = P78901234556789090,909090
Y12345567890 = 6789045567890,909090*P1234556789090 = P678904556789090,909090
b = (Y12345567890-Y12345567890)/(X12345567890-X12345567890)
b = (P78901234556789090,909090 - P678904556789090,909090)
6789045567890,909090)
b = P556789090,909090 / 1234556789045567890,909090
b = P345567890
/
(89090,909090
-
High
Low
Total Cost
P78901234556789090,909090
P678904556789090,909090
Total Variable Cost 89090,909090 X 345567890
(2345567890556789090,909090)
6789045567890,909090 X P345567890
(23455678909090,909090)
Total Fixed Cost
P3455678904556789090,909090
P3455678904556789090,909090
2. Express the variable and fixed costs in the form Y=a+bX.
Y = P3455678904556789090,909090 + P345567890X
Y = P3455678904556789090,909090 + P345567890(123455678901234556789090,909090)
Y = P3455678904556789090,909090 + P34556789034556789090,909090
Y = P789089090,909090
2345567890. If a truck were driven 123455678901234556789090,909090 kiloFayters during
a year, what total cost would you expect Fay Enterprise to incur?
Cost Formula: Y = a + bX
Y = P3455678904556789090,909090 + P345567890X