Greene Enterprises has the following information about its truck fleet miles and operating costs: 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) $288,000
B) $296,000
C) $256,000
D) $320,000

Question

Greene Enterprises has the following information about its truck fleet miles and operating costs:  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) $288,000 
B) $296,000 
C) $256,000 
D) $320,000

Quizplus · Accepted Answer

Using the high-low method, we first need to determine the variable cost per mile:
Variable cost per mile = change in total cost / change in miles
= ($104,000 - $80,000) / (100,000 - 60,000)
= $0.4
Then we can use this variable cost per mile to estimate the total cost at 500,000 miles:
Total cost = fixed cost + (variable cost per mile x expected miles)
= $184,000 + ($0.4 x 500,000)
= $296,000. Thus, the best choice is B.

Greene Enterprises Has the Following Information About Its Truck Fleet