Question

Problem 10-32 Replacement Decisions (LO2) Your small remodeling business has two work vehicles. One is a small passenger car used for job-site visits and for other general business purposes. The other is a heavy truck used to haul equipment. The car gets 25 miles per gallon (mpg). The truck gets 10 mpg. You want to improve gas mileage to save money, and you have enough money to upgrade one vehicle. The upgrade cost will be the same for both vehicles. An upgraded car will get 40 mpg; an upgraded truck will get 12.5 mpg. The cost of gasoline is $3.35 per gallon. Calculate the annual fuel savings, in gallons, for the truck and car assuming both vehicles are driven 8,500 miles per year. (Round your answers to 2 decimal places, e.g., 32.16.) Truck Car Fuel savings gallons per year gallons per year Assuming an upgrade is a good idea in the first place, which one should you upgrade? Both vehicles are driven 8,500 miles per year. Truck Car

Answer 1

(a) Number of miles = 8500

Before Upgradation

Gallons used by Car = Number of miles / mpg = 8500/25 = 340 gallons

Gallons used by Truck = Number of miles / mpg = 8500/10 = 850 gallons

After Upgradation

Gallons used by Car = Number of miles / mpg = 8500/40 = 212.5 gallons

Gallons used by Truck = Number of miles / mpg = 8500/12.5 = 680 gallons

Fuel Savings for Car = 340 - 212.50 = 127.5 gallons

Fuel Savings for Car = 850 - 680 = 170 gallons

(b) Since the fuel savings is higher for the truck, we should upgrade the Truck