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Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of a new car is one of your biggest personal expenditures. It is important that you carefully analyze your options. Suppose that you are considering the purchase of a hybrid vehicle. Let’s assume the following facts. The hybrid will initially cost an additional $6,000 above the cost of a traditional vehicle. The hybrid will get 30 miles per gallon of gas, and the traditional car will get 20 miles per gallon. Also, assume that the cost of gas is $2.40 per gallon. Using the facts above, answer the following questions.
a. What is the variable gasoline cost of going one mile in the hybrid car? What is the variable cost of going one mile in the traditional car?
b. Using the information in part (a), if "miles" is your unit of measure, what is the "contribution margin" of the hybrid vehicle relative to the traditional vehicle? That is, express the variable cost savings on a per-mile basis.
c. How many miles would you have to drive in order to break even on your investment in the hybrid car?
d. What other factors might you want to consider?

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Answer:

A) 0.08; 0.12

B) 0.04

C) 150,000 miles

D) Insurance cost, carbon emission, Second hand value, Licensing fee, E. t. C

Explanation:

A)

What is the variable gasoline cost of going one mile in the hybrid car?

The variable gasoline cost = ( cost per gallon / total miles per gallon)

Cost per Gallon = $2.40

Miles per gallon(hybrid car) = 30

Variable gasoline cost(hybrid car) =( 2.40/30) = 0.08

What is the variable cost of going one mile in the traditional car?

The variable gasoline cost = ( cost per gallon / total miles per gallon)

Cost per Gallon = $2.40

Miles per gallon(traditional car) = 20

Variable gasoline cost(hybrid car) =( 2.40/20) = 0.12

B.) variable cost savings on a per-mile basis.

Variable cost difference (0.12 - 0.08) = 0.04

C.) break even point in miles

(additional fixed cost / cost saving per mile)

(6000 / 0.04) = 150,000 miles

D) other factors may include ;

Insurance cost

carbon emission

Second hand value

Licensing fee and so on

The variable gasoline cost in the hybrid car and traditional car is $0.09 and $0.12 per miles.

Case: 1

The variable gasoline cost in the hybrid car = $2.40/30

The variable gasoline cost in the hybrid car = $0.08 per mile

The variable gasoline cost in the traditional car = $3.60/20

The variable gasoline cost in the traditional car  $0.18

Case: 2

Savings per mile = The variable gasoline cost in the hybrid car - The variable gasoline cost in the traditional car

Savings per mile = ($0.18 – $0.08).

Savings per mile = $0.10

Case: 3

Break even point = Fixed cost / Savings per mile

Break even point = 6,000 / 0.10

Break even point = 600,000 miles

Case: 4

You should also examine a number of other elements in your analysis. Do the cars' estimated maintenance bills, insurance prices, licensing fees, or final resale value differ. In addition, several jurisdictions and corporations provide subsidies for hybrid car purchases.

Non-financial considerations, such as a desire to cut emissions, may also impact your decision.

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