# Need a Hair Cut Ltd. operates

Need a Hair Cut Ltd. operates a fleet of rental cars inKingsvilli. The company has determined that if a car is driven105,000 kilometres during a year, the average operating cost is12.665 cents per kilometre. If a car is driven only 70,000kilometres during a year, the average operating cost increases to14.5 cents per kilometre. Note: Please do not round the decimalplaces of cost per kilometre, which is 12.665 and 14.5 cents perkm.

Required:

1. Using the high–low method, estimate the variable and fixed costelements of the annual cost of truck operation.
2. Express the variable and fixed costs in the form Y =a + bX.
3. If a rental car were driven 80,000 kilometres during a year,what total cost would you expect to be incurred?

 KM Driven Average OpCost TotalCost High LEVEL 105,000 12.665 1,329,825 Low Level 70,000 14.5 1,015,000 Change 35000 314825 1) Variable cost(Slope) = Change in TotalCost / Change in KM Driven =(314825/35000) 8.995 Per km Total cost – Variable cost = Fixedcost 1329825 – (105000*8.995) = Fixedcost Fixed Cost = \$385,350 2) y = \$385,350 + 8.995 X 4) Operating cost (80000 km ) =80000*8.995 +385350 1,104,950

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