Question

Paul Kim estimates that he will drive about 10,000 miles during the year and will have $3,460 in annual fixed costs. He projects a cost per mile of $0.54 or less for his truck. What is the maximum annual variable cost he can have to reach his projection?

Answer 1

The maximum annual variable cost he can have to reach his projection is $1,940

Explanation:

Given;

Number of miles drive per year N = 10,000 miles

Total annual Fixed cost F = $3,460

cost per mile(rate) r = $0.54 or less

Total cost = fixed cost + variable cost

Total cost = cost per mile × number of miles

Total cost = r × N = $0.54 × 10,000 = $5,400

Let V represent the total variable cost per year;

F + V ≤ r × N

Substituting the values;

3,460 + V ≤ 5,400

V ≤ 5,400 - 3,460

V ≤ 1,940

The maximum annual variable cost he can have to reach his projection is $1,940