deriving an averag pn estimated cost? 5.4 A project will require 100,000 gal of
ID: 2812320 • Letter: D
Question
deriving an averag pn estimated cost? 5.4 A project will require 100,000 gal of diesel fuel over a period of 3 years. The estimate has been prepared using a fuel price of $2.90 per gal. Per- form a sensitivity analysis of the effect of rising fuel prices. Some have predicted that the price of diesel could rise to $3.30 per gal in two years. What fuel cost will you use in the estimate? If the estim is 50,000 gal in the first year, 35,000 gal in the second year, and 15,000 gal in the third year, how would that affect your estimated cost? $2.90 per gal. S/gal 100,000 gal 50,000 35,000 15,000 2.90 $290,000 $145,000 $101,500 $43,500 2.95 $295,000 $147,500 $103,250 $44,250 3.00 $300,000 $150,000 $105,000 $45,000 ated consumption 2 3 3.05 $305,000 $152,500 $106,750 $45,750 3.10 $310,000 $155,000 $108,500 $46,500 3.15 $315,000 $157,500 $110,250 $47,250 3.20 $320,000 $160,000 $112,000 $48,000 325 $325,000 $162,500 $113,750 $48,750 330 $330,000 $165,000 $115,500 $49,500 $309,750 335 $335,000 $167,500 $117.250 $50,250 310,000Explanation / Answer
a) Sensitivity Analysis:
At $ 2.90 per/ gal:
The cost for the consumption of 1,00,000 gallons would be:
First year for 50,000 gallons = $ 1,45,000
Second year for 35,000 gallons = $ 1,01,500
Third year for 15,000 gallons = $ 43,500
Total Cost for three years = $ 2 ,90,000
b) At $ 2.95 per/ gal:
The cost for the consumption of 1,00,000 gallons during the three years would be: $ 2,95,000
There will be an increase of $ 5,000 over the three years for increase in the petro by $ 0.05 per /gal.
c) At $ 3.00 per/ gal:
The cost for the consumption of 1,00,000 gallons during the three years would be: $ 3,00,000
There will be an increase of $ 5,000 over the three years for increase in the petro by $ 0.05 per /gal.
Conclusion:
At the end of three years the cost of consumption of 1,00,000 gallons of pertrol at $ 3.30 per / gal would be $3,30,000.
This will increase the current consumption cost by $ 40,000, over the three years
b) Use of estimate:
If the fuel price is expected to rise to $ 3.30 per / gal, price would rise by $ .20 per / gal i.e. .40/2 = $. 20
If this is so, the expected consumption cost in the two years would be :
First year 50,000 X $. 20 = $ 10,000
Second year 35,000 X $. 20 = $ 7,000
Third year 15,000 X $ . 20 = $ 3,000
( assuming that even in the third year the price would rise by $.20)
The total cost is equal to = $2,90,000 + $ 20,000 = $ 3,10,000
According to my estimate, the cost would increase by $20,000 over three years. But as per the price given in the table for three years at cost of $ 3.30 would be $ 3,30,000. This an increase of $ 40,000. While according to my estimate there would be only an $ 20,000.
*******************
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.