Mvudi (Pty) Ltd owns a fleet of five (5) AMG 45 CLA motor vehicles of which they give the right of use to their managerial staff. They approached you for advice regarding insurance costs.

Current insurance:

The vehicles are currently insured through Your Way Insurance and Mvudi (Pty) Ltd pays a fixed monthly premium of R1 300 per vehicle.

The financial manager however received a quote from another insurance company (Unisure) to insure the vehicles based on a fixed rate plus a statistically determined rate per kilometer driven by the motor vehicle on a monthly basis.

New insurance quote:

The minimum payment will be R875 per vehicle, irrespective of kilometers travelled. The following estimates of total insurance premium were obtained from the potential new insurer (Unisure):

Number of kilometers driven (km)	Insurance premium per month (R)
800	875
1 500	1 150
1 900	1 400
2 500	1 725

The financial manager is considering changing their insurer to Unisure, but he is not sure whether it will be beneficial for Mvudi (Pty) Ltd.

Assume that all vehicles in the fleet have to be insured by the same insurance company.

Required:

Calculate and conclude whether it will be more beneficial for Mvudi (Pty) Ltd to pay a fixed monthly insurance premium per vehicle or to opt for the new option to pay a semi-variable premium, assuming:

2.1 Three (3) of the vehicles in the fleet travel on average 2 000km per month each and the remaining vehicles each travel 1 300km per month (11 marks) .

2.2 Two (2) of the vehicles each travel 600km per month and the remaining vehicles each travel 2 000 km per month (4 marks) .