Kristen Lu purchased a used automobile for $14,500 at the beginning of last year
ID: 2523617 • Letter: K
Question
Kristen Lu purchased a used automobile for $14,500 at the beginning of last year and incurred the following operating costs: Depreciation ($14,500+5 years) Insurance Garage rent Automobile tax and license Variable S 2,900 1,500 $ 800 S 400 $0.10 per mile cost 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 $2,900. The car is kept in a garage for a monthly fee Required 1. Kristen drove the car 14,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.) Average fixed cost per mile Variable operating cost per mile Average cost per mile 0.00 2. 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? Assume that there is no decrease in the resale value of the car due to its use. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) ? Variable operating costs Automobile tax License costs Insurance costsExplanation / Answer
1.Average cost per mile of owning and operating the car = $0.50
Fixed costs
Depreciation $2900
Insurance $1500
Garage rent $800
Automobile tax and license $400 $5600
Variable costs
Variable operating costs per mile 0.10
Miles 14,000 $1400
Total cost of raopeting the car $7000
Miles 14000
Average total cost per mile to operate car $0.50
2.Relevent Cost is - Variable operating costs
These are future costs which will only be incurred if Kristen uses her own car.
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