Chapter 1, Problem 40P

Cost Data for Managerial Purposes

You have been asked by two of your friends, Marco and Jenna, to settle a (friendly) argument they are having about splitting the cost of a road trip during Spring Break. They will take Jenna’s car and they have agreed to “share the cost” of the drive. Based on current fuel prices and the mileage of Jenna’s car, the fuel cost is roughly $0.20 per mile. Marco says he should pay about $0.13 per mile for the fuel, plus a small amount ($0.03) for other variable costs (such as routine maintenance). Jenna says that he should pay 50 percent of $0.56, which is the current rate the Internal Revenue Service (IRS) allows for the use of a personal car. In addition to fuel and routine maintenance, the IRS rate is designed to cover “wear and tear” on the car. Marco argues that the wear and tear would occur whether he went on the trip or not.

Required

1. a.      What would you recommend Marco pay Jenna per mile for sharing the car? Explain briefly.
2. b.      Would your answer to Requirement (a) change depending on whether or not Jenna was going to take the trip, whether or not Marco went along? Explain briefly.