LM Operates a Parcel Delivery Service

LM operates a parcel delivery service. Last year its employees delivered 15,120 parcels and travelled 120,960 kilometers. Total costs were $194,400. LM has estimated that 70% of its total costs are variable with activity and that 60% of these costs vary with the number of parcels and the remainder vary with the distance travelled. LM is preparing its budget for the forthcoming year using an incremental budgeting approach and has produced the following estimates: • All costs will be 3% higher than the previous year due to inflation • Efficiency will remain unchanged • A total of 18,360 parcels will be delivered and 128,800 kilometers will be travelled. Calculate the following costs to be included in the forthcoming year's budget:  (i) the total variable costs related to the number of parcels delivered.  (ii) the total variable costs related to the distance travelled.

A) Parcel related cost for next year = $112,308; Distance related costs for next year = $79,590
B) Parcel related cost for next year = $109,118; Distance related costs for next year = $89,699
C) Parcel related cost for next year = $112,118; Distance related costs for next year = $59,699
D) Parcel related cost for next year = $105,306; Distance related costs for next year = $30,590
E) Parcel related cost for next year = $115,306; Distance related costs for next year = $31,590

Correct Answer:

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