Question

Concern:

Have the diesel trucks proven to be cost saving?

Information:

Diesel fuel is 12 cents per gallon cheaper than gasoline

Average Truck gets 10 miles per gallon

Diesel trucks cost more to repair and maintain than gasoline trucks.

Data has been collected on 20 trucks with the following information: age, miles driven and type.

“Tony,” said Mike as he put the data in Table 1 in front of Sanchez, “this data shows that, on average the 6 diesel trucks cost $21,156 in R&M expense whereas the 14 gasoline trucks averaged only $13,269 in R&M expense. I am also surprised that simple correlations show a negative relationship between miles driven and age and between miles driven and type of truck.” Tony looked up at Mike and replied, “Mike can I borrow this data. I have a young college graduate that I just hired and she is very bright. Let me ask her to look at this data and see what she comes up with.”

Required:
Assume that you are an analyst working for Tony Sanchez. He has asked you to analyze this data and to address the questions below. Prepare a business memo that addresses his issues.

Do you agree with the Mike Gore’s conclusion that “the diesel trucks have not produced the expected operating savings”? State your conclusion and support it with numbers.

Truck #	Expense	Miles	Years	Type
1	21,100	100,625	1	1
2	23,548	108,750	2	1
3	18,560	83,438	2	1
4	19,525	77,500	3	1
5	22,435	88,125	3	1
6	21,768	85,938	3	1
7	10,345	95,625	1	0
8	11,575	91,875	1	0
9	14,240	98,125	2	0
10	13,300	88,438	2	0
11	14,105	90,625	2	0
12	13,050	81,875	2	0
13	17,150	95,625	3	0
14	11,230	76,849	2	0
15	10,490	92,145	1	0
16	16,645	86,940	3	0
17	16,219	91,257	3	0
18	13,565	85,432	2	0
19	9,245	84,688	1	0
20	14,600	80,625	3	0

Answer 1

Ans:

Truck #	Expense	Miles	Years	Type
1	21,100	100,625	1	1
2	23,548	108,750	2	1
3	18,560	83,438	2	1
4	19,525	77,500	3	1
5	22,435	88,125	3	1
6	21,768	85,938	3	1
Diesel	126,936	544,376	14
7	10,345	95,625	1	0
8	11,575	91,875	1	0
9	14,240	98,125	2	0
10	13,300	88,438	2	0
11	14,105	90,625	2	0
12	13,050	81,875	2	0
13	17,150	95,625	3	0
14	11,230	76,849	2	0
15	10,490	92,145	1	0
16	16,645	86,940	3	0
17	16,219	91,257	3	0
18	13,565	85,432	2	0
19	9,245	84,688	1	0
20	14,600	80,625	3	0
Gasoline	185,759	1,240,124	28

Incremental cost per gallon of Gasoline as compare to Diesel	$0.12
So incremental cost per mile	$0.12/10
	$0.01
Miles travel by 14 gasoline trucks in there life	1,240,124
Incremental fuel cost	$14,881.49
So total cost on repair and maintenance and Incremental fuel cost	$185,759+$14881.49
	$200,640.49
Average cost per mile for Diesel Truck	$0.16
Average cost per mile Gasoline Truck	$0.23
Average life of the diesel truck in years	2.33
Average life of the Gasoline truck in years	2
Average miles Travel each Diesel Truck	90,729.33
Average miles Travel each Gasoline Truck	88,580.29

Repair and maintenance budget for the next fiscal year

Repair and Maintenance Budget for next Fiscal year
Particulars	Diesel Truck	Gasoline Truck
Number of trucks bought	1	1
Miles Travel	80,000.00	80,000.00
Average repair and maintenance cost per mile ( Total repair and maintenance cost / total miles travelled )	$0.23	$0.15
Expected repair and maintenance cost	$18,654.17	$11,983.25