REPAIR DECISION. Clermont Transit operates a summer ferry service to islands in the Ohio River. Farmers use the ferry to move farming equipment to and from the islands. Clermont’s ferry is in need of repair. A new engine and steering assembly must be installed, or the Coast Guard will not permit the ferry to be used.

Because of competition, Clermont will not be able to raise its rates for ferry service if these repairs are made. Costs of providing the ferry service will not be decreased if the repairs are made.

REQUIRED:
1. Identify the factors that Clermont should consider when evaluating whether or not to make the repairs.
2. Since the revenue rate cannot be increased and expenses will not be decreased if the repairs are made, can the cost of the repairs be capitalized? Why?