Hickory Plus selle office furniture in the Ozarks. As part of its service it del

Question

Hickory Plus selle office furniture in the Ozarks. As part of its service it delivers furniture to customers. Costs associated with the acquisition annual operation of a delivery truck are given below: s Insurance Licenses Vehicle Tax Garage rent (per truck) $1,600 250 160 1,200 1,800 $0.07 per mile Gas, oil, tires, repair. a. Assume that Hickory has purchased one truck and that the truck bas been driven 50,000 miles during the first year. Compute the average cost per mile of owning and operating the truck b. At the beginning of the second year, Hickory is unsure whether to use the truck or leave it parked in the garage and bave all hauling done commercially. (The state requires the payment of vehicle taxes even if the vehicle isn't used.) What costs from the previous list are relevant to this decision c. Assume that the company decides to use the truck during the second year Near year-end an order is received from a customer over 1,000 miles away. What costs from the previous list are relevant in a decision between using the truck to make the delivery and having the delivery done commercially? Explain d. Occasionally, the company could use two trucks as the same time. For this reason. some thought is being given to purchasing a second truck. The total miles driven would be the same as if only one truck were owned. What costs from the previous list are relevant to a decision over whether to purchase the second truck? Explain.

Explanation / Answer

Requirement a) Computation of the average cost per mile of owning and operating the truck Insurance 1600 Licenses 250 Vehicle taxes 150 Garage Rent 1200 Depreciation 1800 Gas, Oil, Tires & Repairs 3500 Total cost of driving 50000 miles 8500 Average cost per mile 0.17 Requirement b) Following cost are relevent to decision of leaving it parked in garage for overhauling Insurance 1600 Licenses 250 Vehicle taxes 150 Garage Rent 1200 Depreciation 1800 Total cost 5000 Requirement c) Following cost are relevent to decision Insurance 1600 Licenses 250 Vehicle taxes 150 Garage Rent 1200 Depreciation 1800 Gas, Oil, Tires & Repairs $0.07 per mile Requirement d) Following cost are relevent to decision Insurance 1600 Licenses 250 Vehicle taxes 150 Garage Rent 1200 Depreciation 1800

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