The Brickhouse Company is planning to lease a fuel-efficient, hybrid delivery van for its northern sales territory.
Question:
The Brickhouse Company is planning to lease a fuel-efficient, hybrid delivery van for its northern sales territory. They can choose to lease the van under three alternative plans:
- Plan A - Brickhouse would pay \(\$ 0.34\) per kilometre and buy its own fuel.
- Plan B - Brickhouse would pay \(\$ 320\) per month plus \(\$ 0.10\) per kilometre and buy its own fuel.
- Plan C - Brickhouse would pay \(\$ 960\) per month, and the leasing company would pay for all fuel.
The leasing company will pay for all repairs and maintenance, insurance, registration and so on.
Fuel should cost \(\$ 0.06\) per kilometre.
Required:
Using kilometres driven as the units of volume, do the following:
a Write out the cost equation for the cost of operating the delivery van under each of the three plans.
b Graph the three cost equations on the same graph (put cost on the vertical axis and kilometres driven per month on the horizontal axis).
c Determine at what kilometres per month the cost of Plan A would equal the cost of Plan B.
d Determine at what kilometres per month the cost of Plan B would equal the cost of Plan C.
e Calculate the cost, under each of the three plans, of driving 3500 kilometres per month.
Step by Step Answer:
Accounting Information For Business Decisions
ISBN: 9780170253703
2nd Edition
Authors: Billie Cunningham, Loren A. Nikolai, John Bazley, Marie Kavanagh, Geoff Slaughter, Sharelle Simmons