Question 8.5: Use the data in Numerical Example 8.3. Suppose that one depa...
Use the data in Numerical Example 8.3. Suppose that one department decides not to use the motor pool because of alternative transportation opportunities, and the total expected kilometers to be driven are reduced to 600,000 kilometers. What is the effect on the application rate?
The new application rate is as follows:
$200,000+($0.20/kilometers × 600,000 kilometers)/600,000 kilometers =$0.53/kilometer
The application rate is higher than the rate of $0.45 per kilometer in Numerical Example 8.3, as the remaining users of the motor pool must pay a higher share of the fixed costs. The fixed costs of operating the motor pool must be spread over fewer users
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