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EB11.
LO 2.3Able Transport operates a tour bus that they lease with terms that involve a fixed fee each month plus a charge for each mile driven. Able Transport drove the tour bus 4,000 miles and paid a total of $1,250 in March. In April, they paid $970 for 3,000 miles. What is the variable cost per mile if Able Transport uses the high-low method to analyze costs?

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Answer:

Using High and Low Method  

                            Cost    Miles

                              $

High                     1,250    4,000

Low                      (970)    (3,000)

                            280     1,000

Variable cost per mile = $2,800/1,000

                                       =$0.28 per mile                

Explanation:

In this question, there is need to obtain the difference with the highest cost and lowest cost. We also need to calculate the difference between                                                                                                                                                                                                     the highest miles and lowest miles. Finally, we will divide the difference in cost by the difference in miles in order to determine the variable cost per mile.