Answer:
Blue Star
a. The Ford TriVan The Honda CityVan
Total life-cycle costs $94,368 $90,936
Based on life cycle cost, the Honda CityVan is the best choice.
b. Blue Star needs to put on the Ford TriVan 9,032 miles more for the cost to be equal with the Honda CityVan's.
c. The crossover point in years = 5 months
Step-by-step explanation:
a) Data and Calculations:
The Ford TriVan The Honda CityVan
Purchase costs $28,000 $32,000
Fuel efficiency per gallon 24 miles 37 miles
Operating cost per mile $0.20 $0.22
Total operating costs $4,400 $4,840
Estimated annual distance 22,000 miles 22,000 miles
Gallons of fuel consumed 916.7 (22,000/24) 594.6 (22,000/37)
Total cost of fuel $3,896 $2,527
Fuel cost per mile $0.18 $0.115
Total cost per mile $0.38 $0.335
Expected life of truck 8 years 8 years
Average gas price = $4.25 per gallon
Total costs:
The Ford TriVan The Honda CityVan
Annual costs:
Total operating costs $4,400 $4,840
Total cost of fuel $3,896 $2,527
Annual costs $8,296 $7,367
Life cycle costs:
Annual costs for 8 years $66,368 $58,936
Purchase costs $28,000 $32,000
Total life-cycle costs $94,368 $90,936
Difference in costs between Ford TriVan and Honda CityVan = $3,432 ($94,368 - $90,936)
Miles to put on the Ford TriVan for the life cycle cost to be equal to the life cycle cost of the Honda CityVan
= Difference in costs divided by total cost per mile of the Ford TriVan
= 9,032 miles ($3,432/$0.38)
Annual distance = 22,000 miles
Monthly distance = 1,833 miles
9,032/1,833 = 4.93 months or 5 months approximately
