A last-mile delivery service is looking into increasing capacity by purchasing new delivery vans. Two vans are being considered.
Van A costs $50,000 with a variable cost of $12.00 per average delivery, all inclusive of gasoline, insurance, etc. Van B costs $70,000 with a variable cost of $11.00 per average delivery. The company is also considering a courier service which requires a $60,000 non-refundable joiner fee and a variable cost of $13.00 per average delivery. Last but not least the company is also considering a new drone delivery option that requires an investment in infrastructure of $100,000 and a delivery cost of $15.00 per delivery, but costs are expected to drop sharply in the foreseeable future.
a. What of the following is NOT true?
A. In the long run, Option B with its $11.00 variable cost is the best option
B. The drone option should be chosen because it is the least expensive in terms of both fixed and variable cost.
C. Option A requires the smallest initial cash outlay, followed by using the courier service, followed by Option B.
D. There is no point of indifference/break even between Option A and using the courier service
b. ________ is preferred at volumes below_______ while_______ is preferred at volume above_______
A. B and 30,000, A and 20,000
B. B and 5,000, C and 5,000
C. C is always preferred to A at every volume
D. A and 20,000, B and 20,000
