CAFM Fleet Financial Management 4 — Questions and Answers
Question 1: A fleet manager is calculating cost per mile for a vehicle that drove 18,000 miles last year with total costs of $9,900. What is the cost per mile?
- $0.45
- $0.55 (Correct answer)
- $0.60
- $0.50
Correct answer: $0.55
Cost per mile = Total costs ÷ Miles driven = $9,900 ÷ 18,000 = $0.55 per mile.
Question 2: In an open-end fleet lease, who bears the risk if the vehicle's actual market value at lease end is lower than the projected residual value?
- The lessor (leasing company)
- The lessee (fleet company) (Correct answer)
- The vehicle manufacturer
- The insurance carrier
Correct answer: The lessee (fleet company)
In an open-end lease, the lessee is responsible for any shortfall between the actual market value and the guaranteed residual value at lease end.
Question 3: Which variance analysis would a fleet manager use to determine why actual fuel costs exceeded the budgeted amount?
- Volume variance and price variance (Correct answer)
- Overhead variance only
- Sales mix variance
- Labor efficiency variance
Correct answer: Volume variance and price variance
Fuel cost variances are typically split into volume variance (more miles driven than planned) and price variance (higher fuel price per gallon than budgeted).
Question 4: A fleet manager is comparing two vehicles for acquisition. Vehicle A has a lower purchase price but higher maintenance costs over 5 years. The best financial comparison method is:
- Compare sticker prices only
- Calculate total cost of ownership for both over the same period (Correct answer)
- Choose the vehicle with lower insurance premiums
- Select the vehicle with higher residual value regardless of other costs
Correct answer: Calculate total cost of ownership for both over the same period
Total cost of ownership (TCO) over a consistent time period is the correct method, as it captures all costs including acquisition, fuel, maintenance, and disposal.
Question 5: What is the purpose of a fleet remarketing strategy in financial management?
- To advertise fleet services to new clients
- To maximize proceeds from vehicle disposal and reduce holding costs (Correct answer)
- To renegotiate fuel contracts with suppliers
- To rebrand the fleet with new livery
Correct answer: To maximize proceeds from vehicle disposal and reduce holding costs
Remarketing strategies optimize when and how vehicles are sold to maximize resale value and minimize the time and cost of holding depreciating assets.
Question 6: Section 179 of the IRS tax code is significant for fleet managers because it allows businesses to:
- Defer taxes on vehicle sales gains indefinitely
- Immediately expense the full cost of qualifying vehicles in the year of purchase (Correct answer)
- Claim fuel tax credits on commercial vehicles
- Exclude fleet vehicles from MACRS depreciation schedules
Correct answer: Immediately expense the full cost of qualifying vehicles in the year of purchase
Section 179 permits businesses to deduct the full purchase price of qualifying vehicles in the acquisition year rather than depreciating over multiple years, subject to annual limits.
Question 7: A fleet manager is reviewing a proposal to outsource vehicle maintenance. The financial break-even point is best determined by:
- Comparing the vendor's hourly labor rate to the national average
- Calculating the volume of repairs at which outsourced costs equal in-house costs (Correct answer)
- Reviewing the vendor's Dun & Bradstreet rating
- Comparing the outsource contract length to the fleet cycle
Correct answer: Calculating the volume of repairs at which outsourced costs equal in-house costs
Break-even analysis identifies the maintenance volume at which the fixed costs of in-house operations equal the variable costs of outsourcing, guiding the make-or-buy decision.
CAFM Fleet Financial Management 4
A fleet manager is calculating cost per mile for a vehicle that drove 18,000 miles last year with total costs of $9,900.
What is the cost per mile?