Question

Suppose the current average cost per kilometre for operating a car is $0.45. Maggie is required to drive to a client’s office that is 48 kilometres away (96 kilometres round-trip). She can use her own car and be reimbursed $0.31 per kilometre or use a company-owned vehicle.

What costs would be included in the current average cost per kilometre that might be irrelevant to Maggie’s decision to drive 96 kilometres?

Irrelevant costs

a.Gas & Maintenance b.Depreciation & Insurance c.Insurance & Repairs d.Depreciation & Repairs

Suppose Maggie determined that the cost of gasoline and maintenance for her car is about $0.24 per kilometre. What will Maggie’s reimbursement be if she drives her own car? Which alternative is better? (Round answer to 2 decimal places, e.g. 52.75.)

Reimbursement Amount

$

Using her own car is ___ than using a company-owned vehicle for Maggie. a.worse b.better

Answer 1

The costs which are irrelevant in current average cost per kilometer is: “ b. Depreciation & Insurance”

(This is because Maggie has to expend for Depreciation and Insurance, being mandatory, in any situation whether she drives to office or not)

The reimbursement amount to Maggie = 96 kilometres * $0.31 per Kilometre = $29.76 per trip to office.

Using her own car is “b. better” than using a company-owned vehicle for Maggie.

(This is because of low operating cost of the Maggie own car with a saving of $0.31 - $0.24 = $0.07 per Kilometre.)