Question

Jim Ohlson is leaving tomorrow for a three day business trip to Chicago and is trying to decide the most economical way to get to and from the airport and his home. Jim could either drive (using his own car) or take the shuttle. If Jim drives, then he estimates that it will cost $0.30 per mile driven in operating costs (e.g., for oil and gas) and $7.50 per day for parking. The one-way cost of the shuttle is $25. Jim’s home is exactly 30 miles from the airport.

Required:

What are the controllable costs for Jim’s decision? Write down the magnitude of the controllable costs for both decision options.

Answer 1

Controllable costs are costs that can be directly regulated by the decision makers while Un-controllable costs are not under direct influence of decision makers.

Here, under the situation,

Cost elements	Driving	Controllable/un-controllable	Shuttle
Cost of Oil and Gas	$0.30
Total distance travel	30+30=60		30+30=60
			$25+$25
cost of operation	$18.00	Controllable	$50	Un-Controllable
Cost of parking	7.50*3
	$22.50	Un-Controllable	-
Total cost of decision	$40.50		$50
Preference	Driving by own

As the total cost of driving by self is much less than the cost to travel by shuttle , so he should prefer driving by own.

In First option : The share of total controllable cost , 18/40.50 =  44.44%

In second option: The share of total un-controllable cost , 50/50 = 100% , all the cost in un-controllable for the decision makers.