4.13 A heavy-duty truck is purchased for $35,302. Besides depreciation to zero,
ID: 2342723 • Letter: 4
Question
4.13 A heavy-duty truck is purchased for $35,302. Besides depreciation to zero, costs include $20,792 for repairs and maintenance; $16,768 for gas and oil; $14,472 for garaging and parking: $10,800 for insurance; and $10,560 for state and federal taxes. It will cost its owner $108,694 by the time it has been driven 10 years and 100,000 miles. Find the depreciation cost per mile. What are the yearly and per mile costs? What are the percentages for the elements of ownership? 4.14 The value and upkeep costs of a Chevrolet 1500 work truck are found to follow the schedule shown in the table below End of Year Drop in Value, % Drop in Value, $ Upkeep Costs, S $4904 3600 2700 2000 1504 1036 756 484 340 192 $412 540 1076 1372 1288 1388 1828 968 1216 308 21 15 10Explanation / Answer
13.
calculation of depreciation cost per mile:
total depreciation for 10 years = 35,302 $
(* it is mentioned in the question that the value of truck depreciated to zero, that means total depreciation = total cost of truck)
total miles covered in 10 years = 100,000 miles
depreciation per mile = 0.35302 $
[ 35,302 $ / 100,000 miles ]
Calculation of yearly costs (including depreciation):
total cost for the period of = 108,694 $
duration of the period = 10 years
per year cost = 10,869.4 $
Calculation of yearly costs (excluding depreciation):
total cost for the period of = 73,392 $
duration of the period = 10 years
per year cost = 7,339.2 $
Calculation of per mile cost
total cost for the period of = 108,694 $
total miles covered = 100,000 miles
cost per mile = 1.08694 $
Table showing elements of ownership:
amount
$
percentage to total cost
(%)
14.
a.
As per the calculations above the truck depreciates to 2/3 or 66.66 % of its value between years 3 and 4
As per the calculations above the truck depreciates to 3/4 or 75 % of its value in year 4
b.
YEARLY COST PER MILE ($)
13,500 miles driven per year
as per the above calculations the per mile economy is at its best in the first 3 years and it is seen the highiest in year 7 . therefore it is best to trade the truck in the year 3 or at the maximum before year 7.
c.
if the truck is self owned:
where the cost of repairs is less than first year depreciation of a new truck . as an individual depreciation expense cannot be claimed and also the cost of repairs is less . another important is the investment in a new truck . so it is better to keep the old truck
if truck is owned by the company:
the high first year depreciation can be claimed a business expense and also the new truck enhances its asset value .therefore its better to purchase the new truck
particularsamount
$
percentage to total cost
(%)
depreciation cost 35,302 32.48 repairs and maintanence 20,792 19.13 gas & oil 16,768 15.43 garaging and parking 14,472 13.31 insurance 10,800 9.94 state and federal taxes 10,560 9.72 TOTAL COST 108,694Related Questions
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