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 2017 is 500,000 miles?

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 2017 is 500,000 miles?

Quizplus · Accepted Answer

Using the high-low method, we need to first find the variable cost per mile.

Variable cost per mile = (Cost at highest activity level - Cost at lowest activity level) / (Miles at highest activity level - Miles at lowest activity level)
Variable cost per mile = ($158,000 - $124,000) / (100,000 miles - 50,000 miles)
Variable cost per mile = $1.60

Next, we can use this variable cost per mile to find the total cost at the expected fleet mileage of 500,000 miles.

Total cost = Fixed cost + (Variable cost per mile x Miles)
Total cost = $176,000 + ($1.60 x 500,000 miles)
Total cost = $296,000

Therefore, the best estimate of total costs using the high-low method with the expected fleet mileage of 500,000 miles is $296,000, which is option B.

Barron Enterprises Has the Following Information About Its Truck Fleet