Question

Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of a new car is one of your biggest personal expenditures. It is important that you carefully analyze your options. Suppose that you are considering the purchase of a hybrid vehicle. Let’s assume the following facts. The hybrid will initially cost an additional $4,500 above the cost of a traditional vehicle. The hybrid will get 30 miles per gallon of gas, and the traditional car will get 20 miles per gallon. Also, assume that the cost of gas is $1.80 per gallon. Using the facts above, answer the following questions.
a. What is the variable gasoline cost of going one mile in the hybrid car?
b. What is the variable cost of going one mile in the traditional car?

Answer 1

Answer:

Results are below.

Explanation:

Giving the following information:

The hybrid will get 30 miles per gallon of gas, and the traditional car will get 20 miles per gallon. Also, assume that the cost of gas is $1.80 per gallon.

To calculate the unitary cost of one mile, we need to use the following formula:

One mile unitary cost= cost per gallon / mile sper gallon

Hybrid:

One mile unitary cost= 1.8 / 30

One mile unitary cost= $0.06

Traditional:

One mile unitary cost= 1.8 / 20

One mile unitary cost= $0.09