4. The Fast and Efficient (FAE) Transport Group is reviewing its fleet maintenance operations:

‘Our lease on our current maintenance and repair facilities site will expire in a year, and we need to decide how to operate in the future. Currently, we have the one site with five repair bays. This can cope with our fleet of 40 trucks. But demand is growing; and within two or three years we hope to be operating around 55–60 trucks, so we will have to choose a site

(or sites) that allows for this increase. And that leads me to the next issue – should we stick to operating one central site, or should we plan to have two sites, one for the north and one for the south of our region?’

As far as FAE’s operations managers could forecast, the costs of having one or two sites would be as follows:

One site - fixed cost of establishing the site = ???? 300,000; variable cost of servicing trucks

= ???? 300,000 per truck per year.

Two sites – fixed cost of establishing the sites (for both) = ???? 500,000; variable cost of servicing trucks = ???? 10,000 per truck per year (they will be out of action for less time because sites would be closer).

At what level of demand (in terms of the number of trucks operated by the company) will the two-site proposal be cheaper?