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You are looking to purchase a car. You have decided to purchase a new fuel efficient car or a older one that is a big gas burner. From your analysis the following information has been determined.

NEW CAR: * Cost $15,000 and you would probably keep it for 10 years. After 10 years it could probably be sold for $2,000. Therefore, cost is $1,300/Year. (Fixed Cost) * Insurance Cost will be $500/Year (Fixed Cost) * Tires $300/50,000 Miles (Variable Cost) * Battery $60/2.5 Years (Fixed Cost) * Gas Mileage Is 28 MPG & Gas Cost $1.24/Gallon (Variable Cost)

MUCH OLDER CAR: * Cost $2,000 and you would probably keep it for 5 years. After 5 years it could probably be sold for $200. Therefore, cost is $360/Year. (Fixed Cost) * Insurance Cost will be $250/Year (Fixed Cost) * Tires $300/50,000 Miles (Variable Cost) * Battery $60/2.5 Years (Fixed Cost) * Gas Mileage Is 12 MPG & Gas Cost $1.24/Gallon ( Variable Cost)

You normally drive an average of 25,000 miles each year. Based solely on economic factors, which car will you purchase? At what annual mileage is it more economical to drive the new car?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92287839

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