ACCT560 - Mark Brozek - Case 7
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Berklee College of Music *
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560
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Industrial Engineering
Date
Feb 20, 2024
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docx
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M7: Case
Daddy Wants a Diesel or Does He?
1. For Rebecca to help her father make an analysis of whether he should buy a diesel vehicle they should look at the following. They should look at the cost of purchasing a V8 or diesel compared to the cost of a V6. The cost of diesel fuel over gas. The vehicle milage (MPG) of the V6, V8 and diesel should also be taken into consideration. Rebecca Should also consider her father Jim’s driving habits and how long he had his previous vehicle for.
2. The assumptions that Rebecca should use in her calculations should be utilizing the past six
months of data given to us. Rebecca needs to consider the average premium or diesel over gas
prices. This number results be $1.21
3. The technique Rebecca should use is a cost analysis method. She should figure out the break-even point to analyze if the number of years driven, percentage of high vs. city miles, and the number of miles Jim drove annually would produce more savings than the premium cost of diesel. These numbers are taken from the driving history of her father.
4. Rebecca’s solution will use information would be useful to Jim’s driving behavior. For what Jim wants in a vehicle we are going to analyze the diesel and V6 options for her father.
The diesel option is $4,270.00
He drives 18,000 miles per year and 60% are highway miles
18,000 x .6 = 10,8000 highway miles
The V6 is 25 MPG and the diesel is 29 MPG
V6 (10,8000/25) = 432 gallons
Diesel (10,8000/29) = 372.4
18,000 x .04 = 7,200 city miles
V6 is 21 MPG and diesel is 25 MPG
V6 (7200/21) = 342.85 gallons
Diesel (7200/25) = 288
Year total for V6 = 774.85
Year total for Diesel = 660.40
5. It is obvious that Rebecca’s father Jim would benefit from purchasing a V6 instead of the diesel vehicle. Rebecca should show Jim her calculations and explain to him that no matter what the gas price he will ultimately save on the V6. He could also keep returning 3.75% on his previous investments and not be spending it on the diesel fuel.
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