Final answer:
Using the high-low method, the variable operating cost per kilometer for Hoi Chong Transport Ltd's fleet is $0.06, and the annual fixed operating cost is $13,572.
Step-by-step explanation:
To estimate the variable operating cost per kilometer and the fixed operating cost associated with Hoi Chong Transport Ltd's fleet of trucks using the high-low method, we'll start by finding the difference in cost and kilometers between the high and low activity levels.
- High activity level: 174,000 km at 13.8 cents/km
- Low activity level: 116,000 km at 17.7 cents/km
Next, we calculate the variable cost per kilometer (VCPK) by taking the change in cost divided by the change in kilometers.
Change in cost: (174,000 km x $0.138) - (116,000 km x $0.177) = $24,012 - $20,532 = $3,480
Change in kilometers: 174,000 km - 116,000 km = 58,000 km
VCPK: $3,480 / 58,000 km = $0.06 per kilometer
To determine the fixed operating cost (FOC), we can use either the high or low activity level. For this example, we'll use the high activity level. Subtract the total variable cost at that level from the total cost to get the fixed cost.
Total variable cost at high level: 174,000 km x $0.06 = $10,440
Total cost at high level: 174,000 km x $0.138 = $24,012
Annual fixed operating cost (FOC): $24,012 - $10,440 = $13,572
Therefore, the variable operating cost per kilometer is $0.06, and the annual fixed operating cost is $13,572.