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The delivery trucks of Slavin Transport Company incurred $3,600 of maintenance costs during the busiest month of 2004, in which 12,000 miles were driven collectively. During the slowest month, $2,800 in maintenance costs were incurred, and 8,000 miles were driven. Using the high-low method, what maintenance cost would the company expect to incur if 15,000 miles were driven? A. $3,000 B. $4,400 C. $4,000 D. $4,200 Solution Remember that the method is to first split the costs into variable and fixed components. To do that, we need to make this formula: (C2 - C1) / (V2 - V1) (V=Volume and C = Cost. \"!\" and \"2\" are highest and lowest) SO Variable = (3600 - 2800) / ($12000 - $8000) 800 / $4,000 or 20 cents a unit. NEXT we have to calculate the estimated FIXED costs. Fixed Costs = TOTAL COSTS - Total Variable costs We can use EITHER hi or low. Lets use High Fixed = $3600 - (20 cents * 12000 miles) Fixed = $3600 - $2400 Fixed = $1200 (note that for the LOW volume of miles it also works - Total costs = $1200 (fixed) + Variable (8000 miles * 25cents) Total costs = $1200 + 2000 Total costs = $3200 NOW we move to solving the answer of costs at 15000 miles: Total costs = fixed ($1200) + Variable (20 cents * 15000 miles) Total costs = $1200+ 3000 Total costs = $4200 Answer D ) 4200 .

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- 1. The delivery trucks of Slavin Transport Company incurred $3,600 of maintenance costs during the busiest month of 2004, in which 12,000 miles were driven collectively. During the slowest month, $2,800 in maintenance costs were incurred, and 8,000 miles were driven. Using the high- low method, what maintenance cost would the company expect to incur if 15,000 miles were driven? A. $3,000 B. $4,400 C. $4,000 D. $4,200 Solution Remember that the method is to first split the costs into variable and fixed components. To do that, we need to make this formula: (C2 - C1) / (V2 - V1) (V=Volume and C = Cost. "!" and "2" are highest and lowest) SO Variable = (3600 - 2800) / ($12000 - $8000) 800 / $4,000 or 20 cents a unit. NEXT we have to calculate the estimated FIXED costs. Fixed Costs = TOTAL COSTS - Total Variable costs We can use EITHER hi or low. Lets use High Fixed = $3600 - (20 cents * 12000 miles) Fixed = $3600 - $2400 Fixed = $1200 (note that for the LOW volume of miles it also works - Total costs = $1200 (fixed) + Variable (8000 miles * 25cents)
- 2. Total costs = $1200 + 2000 Total costs = $3200 NOW we move to solving the answer of costs at 15000 miles: Total costs = fixed ($1200) + Variable (20 cents * 15000 miles) Total costs = $1200+ 3000 Total costs = $4200 Answer D ) 4200