Cost Recovery Systems and Fund Structures Flashcards
Why is it important to track vehicle expenses?
- classification of vehicle expenses for internal control and management.
- measure the effectiveness of cost controls.
Describe the RACE system.
Recommended Automobile Classification Expenses.
3 main categories of vehicle expenses – fixed, operating and incidental.
Describe fixed expenses and give some examples that are common in fleets.
Expenses that incur without the impact of operations. Examples include depreciation, interest, administrative overhead, insurance, license and fees.
What are the ‘rules of thumb’ when deciding whether an expense is fixed or not?
- If I acquire a vehicle and leave it in the lot, the costs incurred are fixed.
- If I acquire a vehicle and add an upfit but leave it in the lot, the upfit cost would be considered a part of the capitalization of the vehicle.
- If a vehicle needs refurbishment and the cost of it is more than 50% of the vehicle’s value, then the cost of refurbishment is part of a recapitalization cost.
What are operating expenses?
Expenses considered to be anything that is consumed during the course of the vehicle’s life. These expenses increase with operations.
List some common fleet operating expenses.
Fuel, oil, tires, maintenance.
Should vehicle repairs and refurbishment be considered operating expenses?
Repairs can be considered a subset of an operating cost since they’re not normal or reoccurring.
Refurbishment is recapitalizing a vehicle and bringing it back to operating condition.
What are incidental expenses?
Incidental expenses include everything else. Not maintenance or adding capital value. Examples include car washes, parking fees, toll costs.
Explain other terminology for expenses that may be used in fleets.
Direct costs – operating costs or costs that can be linked directly to fleet operations.
Indirect costs – includes some fixed costs and incidental fleet expenses.
Overhead costs – indirect costs.
What is a cost allocation system?
Allocating costs with one or more cost objectives such as products, departments or divisions.
What does the Cost Allocation Spectrum illustrate?
Multiple approaches available for cost allocation.
Describe the positions identified on the Cost Allocation Spectrum.
Position A – doesn’t track fleet operation costs
Position B – doesn’t track but knows majority of their fleet costs.
Position C – knows their costs and allocate to customers, but doesnt recover from billing.
Position D – knows and allocates operation costs and bills customers.
Position E – comprehensive system that tracks costs even incidentals and overhead costs, allocates/charges customers through different rates and/or surcharges.
What is a General Fund?
When a fleet department receives an annual budget allocation to cover costs of fleet operations.
What are the determining factors in adopting a General Fund?
The type of organization, management goals and expectations.
What is an Internal Service Fund (ISF)?
account for the financing of goods and services provided by one department to other departments on a cost reimbursement basis. Internal service funds shouldn’t generate profit.
What types of organizations use an ISF?
Graphic/printing services
communications
property management
information systems
purchasing
risk management
fleet operations.
What is an Enterprise Fund?
A fund used to account for revenues received for goods or services provided on a continuing basis and financed through user charges.
What types of organizations use an Enterprise Fund?
Airports
ambulance services
parking
utilities
golf courses
transit
libraries.
What three steps can an organization take to improve knowledge of fleet costs?
- Determine its position on the spectrum and its ideal position for the future.
- Identify any challenges to moving to that ideal position.
- Implement cost account processes to allow it to reach that position.
What are common hurdles to an organization achieving an identified goal?
Behavioral – management and employee attitudes.
Technical – absence of necessary cost information and lack of automation to gather and analyze it.
Structural – lack of business units, lines of authority and responsibility.
What four steps should an organization take once it is ready to implement a cost accounting system?
- Develop an activity dictionary.
- Determine how much the organization is spending on each activity.
- Identify the organization’s products, services and customers.
- Select activity cost drivers that link activity costs to the organization’s products, services and customers.
