Hollings Company sells office furniture. As part of its service, it delivers furniture to customers. The costs associated with the acquisition and annual operation of a delivery van are given below:

Required
1. Assume that Hollings Company has purchased one van and that the van has been driven 50,000 miles during the first year. Compute the average cost per mile of owning and operating the van.
2. At the beginning of the second year, Hollings Company is unsure whether to use the van or leave it parked in the garage and have all hauling done commercially. (The state requires the payment of vehicle taxes even if the vehicle is not used.) What costs from the previous list are relevant to this decision? Explain.
3. Assume that the company decides to use the van during the second year. Near year-end an order is received from a customer over 1,000 miles away. What costs from the previous list are relevant in a decision between using the van to make the delivery and having the delivery done commercially? Explain.
4. Occasionally, the company could use two vans at the same time. For this reason, some thought is being given to purchasing a second van. The total miles driven would be the same as if only one van were owned. What costs from the previous list are relevant to a decision over whether to purchase the second van? Explain.

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Insurance Licences Taxes (vehicle) Garage rent for parking (per van) Depreciation (£9,000/5 years) Petrol, oil, tyres and repairs *Based on obsolescence rather than on wear and tear. £1,600 250 150 1,200 1,800* 0.07 per mile