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Hart Company sells and delivers office furniture across Western Canada
Hart Company sells and delivers office furniture across Western Canada.
The costs associated with the acquisition and annual operation of a delivery truck are given below:
Insurance$4,446 Licences$210 Taxes (vehicle)$124 Garage rent for parking (per truck)$1,240 Depreciation ($26,000 ÷ 5 years)$5,200 Gasoline, oil, tires, and repairs$0.21/km
Required:
3. Assume that the company decides to use the truck during the second year. Near year-end, an order is received from a customer over 1,000 kilometres away. What costs from the previous list are relevant in a decision between using the truck to make the delivery and having the delivery done commercially? (Round your answer to 2 decimal places.)
Expert Solution
Variable costs are the only cost that can be avoided by having the delivery done commercially. So, the variable cost i.e. $0.21 will be relevant. And fixed costs are sunk costs that's why these are irrelevant for decision making.
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