Engineering Economy (HELP !!!!) A profitable transport company uses 4.5 ton truc
ID: 1167825 • Letter: E
Question
Engineering Economy (HELP !!!!)
A profitable transport company uses 4.5 ton trucks to transport heavy goods . the company charges it's clients a fixed rate of $5/kilometer. The company literature state that the economic breakeven point is 750 kilometers a day.
A)Explain the concept of the breaken point in the context of this company.
B) Identify three types of fixed costs that the company should carefully examine to lower its breakeven point. Explain your reasoning .
c) Identify three types of variable costs that can possibly be reduced to lower the breakeven point. Why did you select these cost items ?
Thank You
Explanation / Answer
The Break Even point for this company is 750 kms as at break even point the sales is equal to cost. Hence for driving 750 kilometers the total cost should be equal to the income derived from it i.e., 750 x 5 = $3750.
Three fixed costs that the company should carefully examine to lower its breakeven point are Insurance, Permits and Lease payments.Transporting heavy goods definitely need insurance hence the owner should get the insurance with minimum cost and maximum benefits. Permits are required in the transportation industry now and then. Some arrangements should be made for such permits which cover the maximum rights. Trucks leased out should be minimized or else owner should think of eradicating this cost.
Three variable costs that can possibly be reduced to lower the breakeven point are Fuel charges, Repairs & Maintenance and Parts. Fuel should selected wisely that gives the maximum per kilometers. Repairs & Maintenance should be up to date and regular without delay, because breakdowns will cost more heavily. Parts include spare parts and tires they should be of best quality.
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