Page 10 - CIMA May 18 - MCS Day 1 Suggested Solution

CIMA MAY 2018 – MANAGEMENT CASE STUDY

It’s worth noting that the bus types used on these routes hold at least 48 people, meaning that
often the buses will be nowhere near full. Menta might consider reviewing the bus types used,
perhaps switching to smaller buses for less popular routes or in off peak periods to try and save
costs.

It’s also worth noting that for each of the route types, there is a danger that the cost per
kilometre is not an accurate figure. As only 70% of operating costs vary with distance there are
30% that do not. This means that shorter routes may be relatively more expensive as the
remaining 30% of costs are spread over a lower distance, raising the cost per kilometre compared
to longer routes.

The cost per kilometre also includes a depreciation value based on the estimated life expectancy
of the three bus types. However, Menta has been shown to use buses for much longer than the
figures provided and so the real depreciation figure would be much lower and the cost per
kilometre also lower.

For instance, if a bus was used for twice as long as the expected 10 years, the annual vehicle costs
would fall to ($152,837 – $12,000/2) $146,837 and the cost per day wold fall to ($146,837/287)
$511.63, leading to a cost per kilometre of ($511.63/216) $2.37 instead of $2.47, changing the
break‐even point.

54 KAPLAN PUBLISHING