Exercise #1 Monokuma has a four cars for its sales representatives. The business manager estimates running costs as follows: · The cars were purchased two years ago and the total purchase price is...

Exercise #1

Monokuma has a four cars for its sales representatives. The business manager estimates running costs as follows:

·
The cars were purchased two years ago and the total purchase price is $55,000. The cars have an estimated useful life of six years and can be traded in for $4,000 at the end of their estimated useful life. Monokuma depreciates vehicles on a straight-line basis.

·
Petrol and oil cost $0.18 per km.

·
Tyres are replaced after 28,000 kms. Each tyre costs $200 and fitting and balancing charges are $25 per set.

·
Maintenance costs average $300 per car annually.

·
AA membership, tax and insurance cost $350 per car annually.

Required:

Calculate the annual running costs by classifying the costs in terms of fixed, stepped and variable costs. Assume the cars travel:

(a)
14,000 kms per annum.