Greene Enterprises has the following information about its truck fleet miles and operating costs: $$\begin{array} { c c c }
\text { Year } & \text { Miles } & \text { Operating Costs } \
\hline2010 & 400,000 & \$ 256,000 \
2011 & 480,000 & 280,000 \
2012 & 560,000 & 320,000
\end{array}$$ What is the best estimate of total costs using the high-low method if the expected fleet mileage for 2008 is 500,000 miles?
A)$256,000
B)$288,000
C)$296,000
D)$320,000

Question

Greene Enterprises has the following information about its truck fleet miles and operating costs: $$\begin{array} { c c c } 
\text { Year } & \text { Miles } & \text { Operating Costs } \
\hline2010 & 400,000 & \$ 256,000 \
2011 & 480,000 & 280,000 \
2012 & 560,000 & 320,000
\end{array}$$ What is the best estimate of total costs using the high-low method if the expected fleet mileage for 2008 is 500,000 miles?
A)$256,000
B)$288,000
C)$296,000
D)$320,000

Quizplus · Accepted Answer

Using the high-low method:

Step 1: Identify the highest and lowest data points:
Highest data point: 150,000 miles with operating cost of $86,000 
Lowest data point: 50,000 miles with operating cost of $36,000

Step 2: Calculate the variable cost per mile:
Variable cost per mile = (Highest cost - Lowest cost) / (Highest miles - Lowest miles) 
Variable cost per mile = ($86,000 - $36,000) / (150,000 - 50,000) 
Variable cost per mile = $0.50 per mile

Step 3: Calculate the fixed cost: 
Fixed cost = Total cost at Highest or Lowest data point - Total variable cost at that data point 
Fixed cost = $86,000 - ($0.50 x 150,000) 
Fixed cost = $11,000

Step 4: Calculate the estimated total cost for 500,000 miles: 
Total cost = Fixed cost + (Variable cost per mile x Total miles) 
Total cost = $11,000 + ($0.50 x 500,000) 
Total cost = $296,000

Therefore, the best estimate of total costs using the high-low method if the expected fleet mileage for 2008 is 500,000 miles is option C ($296,000).

Greene Enterprises Has the Following Information About Its Truck Fleet