Question
DEH Corporation operates a car rental business, with a fleet of 100 cars for rental. DEH leases cars from the manufacturer for one year at
DEH Corporation operates a car rental business, with a fleet of 100 cars for rental. DEH leases
cars from the manufacturer for one year at a cost of $12,000 per car. Cars are returned to the
manufacturer when the lease expires. The lease fee is non-refundable and leases cannot be
ended early. DEH leases all cars at the same time, and the number of cars under lease cannot
be changed during the lease year. The number of cars can be varied at the end of each lease
year.
DEH pays staff commissions to manage the rental cars. It costs $200 in staff commissions for
each car rented for one month. The unit of production Q is one car rented for one month. There
are no staff costs if there are no rentals. The table below illustrates the commission cost
concept. Costs can exceed the figures provided in the table, that is, you must understand how
to compute the cost for Q = 5, 6, etc.
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