If, in classifying the costs, you consider that some can be treated as either variable or fixed,…


Question Description:

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Data (E) Cost of motor car 5500 Trade-in price after 2 years or 60 000 miles is expected to be 1500 Maintenance — 6-monthly service costing 60 Spares/replacement parts, per 1000 miles 20 Vehicle licence, per annum 80 Insurance, per annum 150 Tyre replacements after 25 000 miles, four at £37.50 each Petrol, per gallon 1.90 Average mileage from one gallon is 25 miles. (a) From the above data you are required: (i) to prepare a schedule to be presented to management showing for the mileages of 5000, 10 000, 15 000 and 30 000 miles per annum: (1) total variable cost (2) total fixed cost (3) total cost (4) variable cost per mile (in pence to nearest penny) (5) fixed cost per mile (in pence to nearest penny) (6) total cost per mile (in pence to nearest penny) If, in classifying the costs, you consider that some can be treated as either variable or fixed, state the assumption(s) on which your answer is based together with brief supporting reason(s). (ii) on graph paper plot the information given in your answer to (i) above for the costs listed against (1), (2), (3) and (6). (iii) to read off from your graph(s) in (ii) and state the approximate total costs applicable to 18 000 miles and 25 000 miles and the total cost per mile at these two mileages. (b) The more miles you travel, the cheaper it becomes.’ Comment briefly on this statement.

Answer

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