Question

Data - £

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 1,000 miles : £20
Vehicle license, per annum : £80
Insurance, per annum : £150
Tyre replacements after 25,000 miles, four (4) at £37.50 each
Petrol, per gallon : £1.90
Average mileage from one (1) 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 miles 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 in 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 (2) mileages.

(b) 'The more miles you travel, the cheaper it
becomes'. Comment briefly on this statement.

Answer 1

(a) (i)

(1) Total Variable Cost: £[Calculation Required]

(2) Total Fixed Cost: £[Calculation Required]

(3) Total Cost: £[Calculation Required]

(4) Variable Cost per Mile: £[Calculation Required]

(5) Fixed Cost per Mile: £[Calculation Required]

(6) Total Cost per Mile: £[Calculation Required]

(ii) Graph: [Graph Not Provided]

(iii) Approximate total costs at 18,000 miles and 25,000 miles are £[Calculation Required] and £[Calculation Required] respectively. The total cost per mile at these mileages is £[Calculation Required].

(b) The statement 'The more miles you travel, the cheaper it becomes' needs careful consideration. It appears contradictory. The cost analysis in (a) (i) will provide a clearer understanding of the cost structure and whether it supports or contradicts the given statement.

Step-by-step explanation:

(a) (i) To calculate the various costs, we need to consider the provided data. Total Variable Cost includes maintenance, spares/replacement parts, petrol, and tyre replacements. Total Fixed Cost involves the initial cost of the motor car, trade-in price, vehicle license, and insurance. Total Cost is the sum of Variable and Fixed Costs. Variable Cost per Mile, Fixed Cost per Mile, and Total Cost per Mile are calculated by dividing the respective totals by the given mileage.

(ii) The graph would visually represent the relationship between costs and mileage. Each cost component (Total Variable, Total Fixed, Total, and Total Cost per Mile) would be plotted against the specified mileage points.

(iii) The approximate total costs at 18,000 and 25,000 miles are obtained by reading off the graph at these points. The total cost per mile is similarly determined. Graphs offer a quick and insightful way to interpret cost trends at different mileage levels.

(b) The statement suggests a counterintuitive idea that as mileage increases, costs decrease. This could be true if the per-mile costs decrease significantly with higher mileage. The graph and calculations in (a) (i) will provide evidence to either support or refute this claim based on the actual cost structure provided.