The purpose of this exercise is to demonstrate the matching principle in a famil
ID: 2432045 • Letter: T
Question
The purpose of this exercise is to demonstrate the matching principle in a familiar setting. assume that you own a car that you drive about
24,140.1 km each year
a. list the various costs to you associated with owning and operating this car. make an estinmate of total annual cost of owning and operating the car, as well as the average cost-per-km you drive.
b. assume that you have a part-time job. you usually do not use your car in this job, but today your employer asks you to drive 160.934 km
(round-trip) to deliver some important documents. Your employer offers to "reimburse you for your driving expenses" You already have
a full tank of gas, so you are able to drive the whole 160.934 km without stopping and you dont actually spend any money during the trip.
does this mean that you have incurred no "expenses" for which you should be reimbursed? explain.
Explanation / Answer
a. Various Expenses associated with owning and maintaining a car and its estimate of total cost is as follows -
1. Fuel Cost $2700
2. Insurance Cost $400
3. Servicing Cost $800
4. Road taxes $200
5. Parking Charges $100
Total Cost = $4200
Total Kms = 24140.1
Cost per km = $0.174 per km
b When I used the car the car for the employer's round trip, it obviously consumed fuel. The fact that I didn't refilled fuel was only because I had enough in my fuel tank. The fuel's quantity in the tank got decreased due to the round trip. Also, when I drove the car for the round trip, it obviously got some wear and tear. So the Service Expenses should also be charged from the employer. Hence, it can be said that thre mere fact that no cash was paid during the round trip doesn't mean that no expense was incurred. Employee should charge his annual per km cost for the distance he drove for the employer.
Amount to be reimbursed = $0.174 * 160.934 = $28
Hence, the employer should reimburse $28 to the employee even though no cash payment was made by the employee during the trip
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