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problem: A company is considering three different proposals for conveyance facilities for its sales personnel who encompass to do considerable travelling measuring around 40,000 Kms every year. The proposals are as shown below:

a) Purchase and maintain own fleet of cars. The average cost of a car is Rs.2,00,000.

b) Permit the executive use his own car and reimburse expenses @ Rs.2.20 per Km and as well bear the insurance costs.

c) Hire cars from an agency at Rs.40,000 per year per car. The company will encompass to bear cost of petrol, taxes and tires.

The given further details are obtainable:

  • Petrol Rs.1.20 per Km.
  • Repairs and maintenance Re.0.40 per Km.
  • Tire Re.0.24 per Km.
  • Insurance Rs.2,400 per car per annum.
  • Taxes of Rs.1,600 per car per annum.
  • Life of car: 10 years with annual mileage of 40,000 Km.
  • Resale value: Rs.40,000 at the end of the 10th year.

Work out the relative costs of the three proposals and rank them. Which one is most economical among them? 

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M912830

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