Jogi Transporters operate in the transport industry. On 1 December 2005, the management acquired a new lorry to meet customer needs and cater for the increase...

Jogi Transporters operate in the transport industry. On 1 December 2005, the management
acquired a new lorry to meet customer needs and cater for the increase in business volume.
The following information relates to the initial and maintenance cost of the lorry.


Additional information:

1. The lorry has an economic life of 4 years.
2. The lorry has 6 tyres after each costing Sh.8000
3. Service is carried out after every 5,000 kilometres.
4. On average the lorry covers 20 kilometres per litre of fuel consumed.
5. The lorry is projected to cover 100,000 kilometres in January 2006, 25,000 kilometres in

Required:
Prepare a schedule for the three months showing

i. Variable costs per kilometer
ii. Fixed costs per kilometer
iii. Total costs per kilometer
c) Fixed costs are actually variable cost
With reference to (b) above explain whether you agree or disagree with the statement.
February 2006 and 50,000 kilometres in March 2006.

---

Fixed costs are really variable costs:

Fixed costs can be seen to be variable because:

(i). The fixed costs per unit is not fixed and will vary with changes in the levels of production
although inversely.
(ii). The total fixed costs will only be fixed within reasonable levels of activity or within a
short time otherwise they will also change.
(iii). Fixed costs will be dependent on some decisions and therefore they are not actually fixed.
(iv). Practically some costs are not purely fixed or purely variable.

---

marto answered the question on February 22, 2019 at 07:19

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