Question

Suppose you manage a delivery company and you must choose between two transportation methods: (a) truck or (b) train. (a)Trucks: Costs U$ 26,000 upfront. For each mile it runs it costs U$ 2.00 in gas. Maintenance costs U$ 4,000 per year and additional U$ 1.00 per mile run. (b)Train: To lease a container that carries the same volume of orders as the truck it costs U$ 10.000 per year. In addition it costs U$ 4.00 per mile to move orders around. Suppose you had to transport packages over 5000 miles in 2017. What's your average cost for that year ?

A: U$ 6.60 for (a) truck and US 2.80 for (b) train.
B: U$ 9.00 for (a) truck and U$ 6.00 for (b) train.
C: U$ 3.00 for (a) truck and U$ 4.00 for (b) train.
D: U$ 6.00 for (a) truck and U$ 2.00 for (b) train.

Answer 1

The correct answer is (B) U$ 9.00 for (a) truck and U$ 6.00 for (b) train.

Step-by-step explanation:

Average Cost = Total Cost/ Total miles Run = Total Cost/ 5000

Total Miles Run = 5000

a) Calculations FOR TRUCK

Data that is given:

$ 26,000 upfront;

U$ 2.00 in gas per mile run

Maintenance costs U$ 4,000 per year

Additional U$ 1.00 per mile run

Total Miles Run = 5000

Total Cost = 26000 + 2*Total Miles Run + 4000 + 1*Total Miles Run = 26000+2*5000+4000+5000= $45000

⇒Average Cost of a TRUCK = Total Cost/5000 = 45000/5000 = $9

b) Calculations for train:

It costs U$ 10.000 per year

$ 4.00 per mile to move orders around

Total Cost for Train = 10000 + 4*Total Miles Run = 10,000 + 4*5000 = 30,000.

⇒Average Cost of Train for That year = Total Cost of Train/ 5000 = 30,000/5,000 = $6

So, $9.00 for truck and $6.00 for train.