Question Tag: Running Costs

Carriers Private Ltd (CPL) was recently formed with the objective of providing sand transport services. It purchased 10 Sand Trucks with a capacity of 5 cubic metres each at a cost of GH¢150,000 per Truck. The monthly running costs and other information have been forecasted as follows:

1. CPL expects each truck to run 5,000 kilometers a month during its lifetime of 4 years, which starts from the date of purchase. Out of the kilometers run each month, 50% is assumed to be by the empty truck that does not generate any revenue. At the end of year 4, each truck could be sold at an estimated consideration equivalent to 30% of the purchase cost.
2. The following salaries will be paid to workers in CPL:
   • A driver would be paid GH¢700 per month. 11 drivers will be recruited, including a stand-by driver to replace a driver taking a leave.
   • A cleaner would be paid GH¢500 per month and 11 cleaners will be recruited.
   • Three office staff would be paid GH¢3,000 per month.
   • A garage worker would be paid GH¢500 per month.
   • Licensing and insurance per annum would be GH¢2,400.
   • Servicing, repairs, and maintenance would be GH¢2 per running kilometer.
   • The current fuel price per litre is GH¢7.30, and management expects to keep a leeway of 10% for inflationary adjustments. The empty truck could run 5 kilometers per litre, and when loaded could only run 3.25 kilometers per litre of fuel.

CPL expects to keep a profit mark-up of 30% on full cost.

Required:
i) Calculate the total hiring charge.
(6 marks)

ii) Determine the running cost for a month per kilometer.
(1.5 marks)

iii) Assess the effective transport charge for a month:

• Per kilometer.
  (1.5 marks)
• Per cubic metre-kilometer.
  (2 marks)

iv) Explain the importance of each cost unit in part iii) above, when applying them in different transport jobs.