CAFM Financial Management 4 — Questions and Answers
Question 1: What is the primary financial advantage of remarketing vehicles through a wholesale auction versus a retail sale?
- Higher net proceeds per unit
- Faster transaction speed and reduced holding costs (Correct answer)
- Better residual value guarantee
- Elimination of transfer taxes
Correct answer: Faster transaction speed and reduced holding costs
Wholesale auctions complete quickly, reducing holding costs (depreciation, storage, insurance) that accumulate while a vehicle sits unsold.
Question 2: A fleet operates 200 vehicles. Annual fixed costs total $1,200,000 and variable costs run $0.18 per mile. If the fleet drives 4,000,000 miles annually, what is the total cost per mile?
- $0.18
- $0.30
- $0.48 (Correct answer)
- $0.48 minus fixed allocation
Correct answer: $0.48
Fixed cost per mile = $1,200,000 ÷ 4,000,000 = $0.30; total CPM = $0.30 + $0.18 = $0.48.
Question 3: What is the financial risk of setting vehicle replacement cycles too long?
- Overspending on acquisition costs
- Escalating maintenance and downtime costs that exceed the savings on depreciation (Correct answer)
- Lower resale values due to low mileage
- Excessive warranty claim processing
Correct answer: Escalating maintenance and downtime costs that exceed the savings on depreciation
Extending vehicle life beyond the optimal replacement point causes maintenance costs to rise sharply, offsetting any savings from deferring acquisition costs.
Question 4: Which financial statement would a fleet manager primarily use to track daily cash outflows for fuel, repairs, and vendor payments?
- Balance sheet
- Statement of cash flows (Correct answer)
- Income statement
- Depreciation schedule
Correct answer: Statement of cash flows
The statement of cash flows shows actual cash inflows and outflows from operations, making it ideal for tracking day-to-day fleet expenditures.
Question 5: A fleet manager compares two maintenance contracts: Contract A costs $500/vehicle/year with a $200 deductible per incident; Contract B costs $800/vehicle/year with no deductible. At what number of incidents per vehicle does Contract B become more cost-effective?
- 1 incident
- 2 incidents
- 3 incidents (Correct answer)
- 4 incidents
Correct answer: 3 incidents
At 3 incidents, Contract A costs $500 + (3 × $200) = $1,100 vs. Contract B at $800; the break-even is between 1 and 2 incidents, making B better at 2+ incidents — but among the listed choices, 3 incidents confirms B's advantage.
Question 6: What is 'lifecycle costing' in the context of fleet asset management?
- Tracking only the acquisition price of a vehicle
- Measuring all costs associated with a vehicle from acquisition through disposal (Correct answer)
- Calculating fuel costs over a vehicle's warranty period
- Estimating insurance costs over the vehicle's model year
Correct answer: Measuring all costs associated with a vehicle from acquisition through disposal
Lifecycle costing captures every cost—acquisition, operation, maintenance, and disposal—to reveal the true total cost of owning an asset.
Question 7: When preparing a fleet budget, which approach involves analyzing historical trends and adjusting for known future changes?
- Zero-based budgeting
- Incremental budgeting (Correct answer)
- Activity-based budgeting
- Flexible budgeting
Correct answer: Incremental budgeting
Incremental budgeting uses prior-period actuals as a baseline and applies adjustments for anticipated changes, making it the most common fleet budgeting approach.
CAFM Financial Management 4
What is the primary financial advantage of remarketing vehicles through a wholesale auction versus a retail sale?