The budgeted annual cost of operating a post office truck is $5,500 plus $0.50 per mile. In 2008 the truck was to be driven 25,000 miles uniformly to deliver various mail items throughout the year. Two employees are needed for each truck. The total cost of operating a truck would be

The total cost of operating a truck would be $18000 as calculated below.

Explanation:

The total costs of operating the truck is a combination of fixed costs of $5500 per year and variable of $0.50 per mile ,hence the total cost function is given as:

TC=5500+0.50X

Where represents the number of miles driven per year.

Since X=25000 miles

TC=$5500+($0.50*25000)

TC=$5500+$12500

TC=$18000

The understanding here is that wages paid to the two employees working  with the truck is already embedded in the fixed costs of $5500 per year, otherwise that would been given as a distinct cost entirely.

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