Question:
Oven Pies Ltd plans to buy a delivery van to distribute pies from the bakery to various neighbourhood shops. It will use the van for three years. The expected costs are as follows:
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£
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New van
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15,000
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Trade-in price after 3 years
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600
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Service costs (every 6 months)
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450
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Spare parts, per 10,000 miles
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360
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Four new tyres, every 15,000 miles
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1,200
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Vehicle licence and insurance, per year
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800
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Fuel, per litre*
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0.70
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*Fuel consumption is 1 litre every five miles.
(a) Prepare a table of costs for mileages of 5,000, 10,000, 15,000, 20,000 and 30,000 miles per annum, distinguishing variable costs from fixed costs.
(b) Draw a graph showing variable cost, fixed cost and total cost.
(c) Calculate the average cost per mile at each of the mileages set out in (a).
(d) Write a short commentary on the behaviour of costs as annual mileage increases.