Kelly Woo, owner of Flower Mode, operates a local chain of floral shops. Each shop has its own delivery van. Instead of charging a flat delivery fee, Woo wants to set the delivery fee based on the distance driven to deliver the flowers. Woo wants to separate the fixed and variable portions of her van operating costs so that she has a better idea how delivery distance affects these costs. She has the following data from the past seven months:_______.
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Use the high-low method to determine
Flower Paradise's cost equation for van operating costs. Use your results to predict van operating costs at a volume of 15,000 miles.
Let's begin by determining the formula that is used to calculate the variable cost (slope).
Change in cost / Change in volume = Variable cost (slope)
Now determine the formula that is used to calculate the fixed cost component.
Total operating cost - Total variable cost = Fixed cost
Use the high-low method to determine
Flower Paradise's operating cost equation. (Round the variable cost to the nearest cent and the fixed cost to the nearest whole dollar.)
y = $
x + $
Enter any number in the edit fields and then click Check Answer.
Data Table
Month Miles Driven Van Operating Costs
January. . . . . .
. . . . . . . . . 15,500 $5,390

February. . . . . . .
. . . . . . . . 17,400 $5,280
March. . . . . . . . .
. . . . . . . . 15,400 $4,960
April. . . . . . . . .
. . . . . . . 16,300 $5,340
May. . . . . . . .
. . . . . . . . 16,500 $5,450
June. . . . . . . .
. . . . . . . . 15,200 $5,230
July. . . . . . . . .
. . . . . . . . . . 14,400 $4,680

In order to calculate the fixed and variable costs using the high-low method, we must take the month with the highest activity (February) and the month with the lowest activity (July):

variable costs = ($5,280 - $4,680) / (17,400 - 14,400) = $600 / 3,000 = $0.20 per mile driven

fixed costs = $4,680 - (14,400 x $0.20) = $4,680 - $2,880 = $1,800