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:
|
£ |
|
|
New van |
15,000 |
|
Trade in price after 3 years |
600 |
|
Service costs (every 6 months) |
450 |
|
Spare parts, per 10,000 miles |
360 |
|
Four new tyres, every 15,000 miles |
1,200 |
|
Vehicle licence and insurance, per year |
800 |
|
Fuel, per litre* |
0.70 |
*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.