# CMA Study Group

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• #### 1.  PART 2 MARGINAL COST

Posted 10-04-2022 02:19 AM
Dear CMA Friends,

I am so confused in this question...

A small delivery company received an order that requires nine deliveries lasting two hours each on the same day. The company owns two vans that together can make eight trips per day. The company can rent a van on a daily eight-hour basis for \$72, and the fuel cost is \$20 per trip. The company has several van drivers, each of whom earns \$30,000 annually and is expected to make 1,000 deliveries each year. The marginal cost of the ninth delivery is

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TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
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• #### 2.  RE: PART 2 MARGINAL COST

Posted 10-05-2022 01:09 AM
Hello Timucin!

When thinking about marginal cost, we know that marginal cost has to do with the extra cost that has to do with making an extra delivery. From what I understand in this question, there are a lot of costs that don't actually directly correlate to the cost of one trip (E.x: Daily eight-hour basis of renting a van, payment to van drivers, etc). Since the only cost in this question that has to do with each "marginal" delivery is the fuel cost, I would think that the marginal cost of the ninth delivery would be \$20, the cost of the fuel. You could argue that you may need to rent vans for a longer period of time, or if the driver's annual salary was broken down into a 'cost-per-delivery' basis. However for the sake of assumptions I'm only assuming that I'm paying an additional \$20 fuel costs for each delivery.

Hopefully this helps!

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Jin-Hwan Ro
Student
Grand Rapids MI
United States
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• #### 3.  RE: PART 2 MARGINAL COST

Posted 10-05-2022 01:54 AM
Thank you my friend

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TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
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• #### 4.  RE: PART 2 MARGINAL COST

Posted 10-05-2022 01:32 AM

Dear TIMUCIN ONER,

In this scenario we understand two things first the company have 2 own vans (vehicles) together can make only eight delivery per day, but they need one more delivery to complete order ?

Secound we understand the meaning of marginal cost is the additional cost of producing one more unit of output means here the company have capacity to complete 8 deliveries per day, but they need one more delivery to complete order so whatever the cost is incurred to complete ninth delivery is called marginal cost.

Remember in marginal cost calculation only the cost of producing unit related expenses will incur no other expenses like salaries & fixed cost will not change for additional unit or delivery.

If the company makes the ninth delivery, it will incur \$72 to rent a van and \$20 fuel cost. Van drivers' salaries are fixed costs and will not change by additional delivery. Thus, the marginal cost of the ninth delivery is \$92 (\$72 + \$20).

I hope u understand my explanation is there anything kindly let me know.

Thanks & Regards

Sumair Shaik

Accountant

Dubai (U.A.E)

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• #### 5.  RE: PART 2 MARGINAL COST

Posted 10-05-2022 01:54 AM
Thank you Sumair

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TIMUCIN ONER
Director/Manager
ANTALYA
Turkey
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• #### 6.  RE: PART 2 MARGINAL COST

Posted 10-05-2022 09:05 AM
I think the answer is \$92.00. The van can be rented on a DAILY 8-hour basis. So full \$72.00 will be paid even for one trip only. Fuel cost per trip is \$20.00 so it is a relevant cost. Van drivers salary is irrelevant since they are paid regularly and impact is indifferent whether they make more or less trips.

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Billy
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• #### 7.  RE: PART 2 MARGINAL COST

Posted 10-07-2022 01:21 AM
Thank you Billy, yes you are right driver's salary is totally irrelevant cost.
Regards

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Timucin ONER
Finance & Contract Director
Antalya Turkiye
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