Kristen Lu purchased a used automobile for $8,000 at the beginning of last year

Question

Kristen Lu purchased a used automobile for $8,000 at the beginning of last year and incurred the following operating costs: $1,600 $1,200 $360 $40 $0.14 per mile Depreciation ($8,000+ 5 years) Insurance Garage rent Automobile tax and license Variable operating 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 $1,600. The car is kept in a garage for a monthly fee. Required: 1. Kristen drove the car 10,000 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

Explanation / Answer

Fixed Cost per mile :-

(1600 + 1200 + 360 + 40) / 10000 miles = $0.32 per mile

Variable cost per mile :-

$0.14 per mile

Average cost per mile :-

Fixed cost per mile + Variable cost per mile

0.32 + 0.14 = $0.46 per mile

(2) Depreciation is relevant

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