Barron 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 2018 is 500,000
Miles?
A) $288,000
B) $296,000
C) $256,000
D) $320,000

Question

Barron 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 2018 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 need to first identify the variable cost per mile by calculating the change in cost divided by the change in miles from the highest and lowest data points.

Variable cost per mile = (Operating cost at highest mileage - Operating cost at lowest mileage) / (Miles at highest mileage - Miles at lowest mileage)
Variable cost per mile = ($372,000 - $240,000) / (200,000 - 100,000) = $132,000 / 100,000 = $1.32/mile

Next, we can use this variable cost per mile to estimate the total cost for 500,000 miles of operation:
Total cost = Fixed cost + (Variable cost per mile x Expected mileage)
Total cost = $184,000 + ($1.32 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 2018 is 500,000 miles is $296,000. Answer: B

Barron Enterprises Has the Following Information About Its Truck Fleet