Hertz's Bankruptcy and Toyota's Use of Activity-Based Costing (ABC) System

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The primary cause of Hertz's bankruptcy was its high fixed costs. Fixed costs refer to expenses that do not vary with production or sales volume changes, such as rent, salaries, and insurance. In Hertz's case, the fixed costs associated with maintaining a large fleet of rental cars and operating a global network of rental locations became too burdensome, particularly in the face of reduced demand during the COVID-19 pandemic (Santos, 2022). In contrast, variable costs are expenses that fluctuate with changes in production or sales volume, such as the cost of fuel or vehicle maintenance. While variable costs are important to monitor and manage, they were not the primary cause of Hertz's bankruptcy. To save Hertz from bankruptcy, the company could have taken several steps to address its fixed costs. One option would have been to renegotiate its leases and rental agree...