Question

Hart Company sells and delivers office furniture across Western Canada. The costs associated with the acquisition and annual operation of a delivery truck are given below:
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,750
Licences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250
Taxes (vehicle). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150
Garage rent for parking (per truck). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,350
Depreciation ($30,000 ÷ 5 years). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000
Gasoline, oil, tires, and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.16/km
Required:
1. Assume that Hart Company owns one truck that has been driven 50,000 kilometres during the first year. Compute the average cost per kilometre of owning and operating the truck.
2. At the beginning of the second year, Hart Company is unsure whether to use the truck or leave it parked in the garage and have all hauling done commercially. (The government requires the payment of vehicle taxes even if the vehicle isn’t used.) What costs from the previous list are relevant to this decision? Explain.
3. Assume that the company decides to use the truck during the second year. Near year-end, an order is received from a customer over 1,000 kilometres away. What costs from the previous list are relevant in a decision between using the truck to make the delivery and having the delivery done commercially? Explain.
4. Occasionally, the company could use two trucks at the same time. For this reason, some thought is being given to purchasing a second truck. The total kilometres driven would be the same as if only one truck were owned. What costs from the previous list are relevant to a decision about whether to purchase the second truck? Explain.


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  • CreatedJuly 08, 2015
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