Exercise 10-14 Identification of Relevant Costs [LO10-1] Kristen Lu purchased a
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Question
Exercise 10-14 Identification of Relevant Costs [LO10-1]
Kristen Lu purchased a used automobile for $23,750 at the beginning of last year and incurred the following operating costs:
The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen estimates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $4,750. The car is kept in a garage for a monthly fee.
Kristen drove the car 23,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)
Fixed cost per mile=
Variable operating cost per mile=
Average cost per mile
Kristen is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision? (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)
Kristen Lu purchased a used automobile for $23,750 at the beginning of last year and incurred the following operating costs:
Explanation / Answer
Kristen Lu Automobile Cost $ 23,750.00 Depreciation $ 4,750.00 Insurance $ 2,500.00 Garage Rent $ 1,300.00 Automobile Tax and Licence $ 650.00 Variable Operating Cost $ 0.09 Per Mile Miles Run $ 23,000.00 Variable Operating Cost $ 2,070.00 1 Fixed cost Per Mile= $ 0.40 Per Mile Variable Cost Per Mile= $ 0.09 Per Mile Average cost Per Mile= $ 0.49 Per Mile 2 Krisen is unsure about she would use her own car or rent a car to go on an extended cross country trip for two weeks during sppring season,the cost relevant for this decision should be Cost Relevant/Irrelevant a Variable Operating Cost Relevant b Depreciation Sunk Cost and Irrelevant c Automobile Tax Irrelevant d Licence Cost Irrelevant e Insurance Cost Irrelevant Irrelevant cost are those cost Which should be incurred whether Krisen uses her own car or rent a car.
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