Buzz Cutter owns a nursery/landscaping business. His employees have been grumbli
ID: 2814614 • Letter: B
Question
Buzz Cutter owns a nursery/landscaping business. His employees have been grumbling about how hard it is to move certain items (mulch, balled trees, etc.), so Buzz is looking into buying a skidloader,. He can use it at the nursery to move these items, and he can use it in the landscaping business, too. Use the following information to help Buzz estimate the costs of owning and operating this skidloader Purchase Price Useful Life (how long he plans to use it!) Salvage Value (value at end of useful life) Current Interest Rate Taxes, Insurance, Shelter Charges per year Annual Repairs and Maintenance Cost Fuel & Oil Costs Annual Usage $15,000 5 years $5,000 7% annually 4% of the purchase price $0.75/hour 5/hour 1,500 hours alculate the annual variable costs (operating costs) of using this skidloader, Round off to nearest dollar. Repairs & Maintenance Fuel/Oil = Total Operating Costs per ye (assuming 1,500 hours use/year) ar What is the total cost per hour of owning and operating this skidloader if Buzz uses it for 1,500 hours per year 1. 2. What is the total cost per hour if Buzz uses it for 2,000 hours per year? 3. What happens to total cost per hour as Buzz uses the skidloader for more hours per year? Why does this happen? 4. A local shopping center has asked Buzz to clean the snow off their parking lots with his skidloader,. How much should Buzz charge them per hour for this service? Explain your answerExplanation / Answer
ANSWER:
Annual variable cost of skidholder
Repair & Maintenance = per hour cost of repair * No of hours worked per year
=0.75 *1500
=1125
Fuel oil = per hour cost o fuel & oil * No of hours worked
=5 *1500
=7500
So the total variable cost of operating skidholder is (1125 +7500) i.e 8625
Note: Since taxes ,insurance this are at a fixed percentage of cost of skidholder & does not vary ,hence this are fixed not variable cost.
ANSWER NO 1
Total cost of owing & operating skidholder
Repair & maintenance = 1125 (per hour cost * no of hours worked i.e 0.75 *1500)
Fuel & oil cost = 7500 (per hour cost *no of hours worked i.e 5*1500)
Insurance ,taxes = 600 (15000*4%)
Interest cost = 1050 (15000*7%)
Total cost of owing & operating skidholder(total of above ) = 10275
Cost per hour = Total cost of owing & operating skidholder /Total no of hours worked
=10275 /1500
per hour cost =6.85
Note : since depreciation is a non cash expenditure the same has not been included in total cost of owing & operating skidholder.
ANSWER NO 2
If total hours worked per year is 2000 hrs cost per hour of owing & operating skidholder will be
per hour cost = Total cost of owing & operating skidholder divided by No of hours worked
=10275 /2000
per hour cost =5.14 (approx)
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