Krystal Clear Windows operates a fleet of large transit vans. Currently each van is replaced after 6 years with new vehicles. In this way all the vans in fleet are under 6 years old. The fleet manager needs to analyse the maintenance cost and trade-in values on a vehicle at the end of each year to find the most cost effective strategy.

For example a new vehicle could be bought and maintained for three years until it is traded in and then another new vehicle is bought, maintained for three years and then traded in.

Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
2 500	3 000	4 500	6 000	6 250	6 500

Fig2. Operating and maintenance cost for age of vehicle (£)

Purchase Price	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
12 500	9 000	7 500	6500	4 500	3 250	1 500

Fig 3. Trade-in value at the end of the year

1. Find the cost of buying a new vehicle every year. Each van is bought, maintained for one year and then traded in after 1 year. (2 Marks)
2. Find the total cost of buying a new van every 3 years. Which method is cheaper (a) or (b)?

(2 Marks)

1. Consider each purchasing policy as a route through a network. Where year 0 is the initial purchase of the first vehicle. Year 1 is a point at the end of year 1 where the vehicle is either retained or traded in. Year 2 is a point at the end of year 2 where the vehicle could again be retained or traded in, etc. Consider all the routes through this network and find the minimum cost.

(8 Marks)

1. Due to new government emissions zero policy by 2050 the trade in value for every year is reduced by £1000 Does this change the optimum purchasing strategy?

(4 Marks)

1. Critically evaluate how sensitive the model is to small changes in the trade-in values. Investigate by running at least two scenarios and critically analysis your results. (4 Marks)

Total (20 Marks)

Answer rating: 100% (QA)

1 Cost of buying a new vehicle every year The cost of buying a new vehicle every year can be calculated by summing up the purchase price and the maint... View the full answer