Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting And Reporting

Authors: Barry Elliott, Jamie Elliott

15th Edition

0273760882, 9780273760887

More Books

Students also viewed these Accounting questions

Question

2. What is the meaning and definition of Banking?

Answered: 1 week ago

Question

3.What are the Importance / Role of Bank in Business?

Answered: 1 week ago