Jogi Transporters operate in the transport industry. On 1 December 2005, the management acquired a new lorry to meet customer needs and cater for the increase in business volume. The following information relates to the initial and maintenance cost of the lorry

Sh.

Cost 12,000,000 Scrap value 2,000,000 Insurance premium per annum 400,000 Annual road license fee 12,000 Replacement of tyres after every 25,000 kilometres 48,000

Maintenance costs after every 5,000 kilometres 15,000

Replacement of spare parts per service 8,000 Price of fuel per litre. 60

Additional information:

1. The lorry has an economic life of 4 years.
2. The lorry has 6 tyres after each costing Sh.8000
3. Service is carried out after every 5,000 kilometres.
4. On average the lorry covers 20 kilometres per litre of fuel consumed.
5. The lorry is projected to cover 100,000 kilometres in January 2006, 25,000 kilometres in February 2006 and 50,000 kilometres in March 2006.

Required:

A schedule for the three months showing

(i). Variable costs per kilometre

(ii). Fixed costs per kilometre

1. (iii). Total costs per kilometer

(d) Fixed costs are actually variable cost With reference to (C) above explain whether you agree or disagree with the statement.