Question - Average costs generally contribute little to the budget process.
The Pleasant Valley School District, which leases its buses from a private transportation company, has determined that the direct costs of operating a bus (including rental fees, driver, and fuel) is $40,000 per year. The district currently operates 30 buses, each of which provides service to 90 children-hence, to a total of 2,700 children. The district also incurs $350,000 per year in fixed costs relating to transportation.
1. Calculate the average cost per child of providing bus transportation.
2. The district expects that next year it will have to provide transportation for an additional 300 children-a total of 3,000.Based on average cost, how much additional cost should the district budget?
3. How much additional cost do you think the district should budget?
4. Suppose that the district expects that it will have to provide transportation for another 60 children in addition to the 300-a total of 360. How much more should it budget for the additional 60 children?
5. Suppose the district expected that it will have to provide transportation for an additional 100 children in addition to the 300-a total of 400 students. How much more should it budget for the 100 children? How might management manage the process until it knew with certainty that 100 children will actually need transportation?