QUESTION 2

Bata Shoes has a fleet of company cars for sales representatives. Running costs have been estimated as follows.

1. Cars cost $12,000 when new, and have a guaranteed trade-in value of $6,000 at the end of two years. Depreciation is charged on straight-line basis.
2. Petrol and oil cost 15 cent per kilometer.
3. Tyres cost $300 per set to replace; replacement occurs after 30,000 kilometres.
4. Bata Shoes has an agreement with a local garage to perform routine maintenance on each car each year. Routine maintenance costs $200 per car in the first year and $450 in the second year.
5. Repairs average $400 per car over two years and are thought to vary with the number of kilometres travelled. The average car travels 25,000 kilometres per annum.
6. Tax, insurance, membership of motoring organizations and so on cost $400 per annum per car.

Required:

Calculate the average cost per annum of cars which travel 10,000 kilometres per annum and 40,000 kilometres per annum.