Hollings Company sells and delivers office furniture in the Rocky Mountain area.

Question

Hollings Company sells and delivers office furniture in the Rocky Mountain area.
The costs associated with the acquisition and annual operation of a delivery truck are given below:


Insurance $1,410
Licenses $230
Taxes (vehicle) $140
Garage rent for parking (per truck) $1,100
Depreciation ($8,000 ÷ 5 years) $1,600*
Gasoline, oil, tires, and repairs $0.06 per mile

*Based on obsolescence rather than on wear and tear.

The owner insists that all appropriate licenses and insurance be paid even if the truck is left in the garage.
Requirement 1:
Hollings Company has purchased one truck that has been driven 50,000 miles during the first year. Compute the average cost per mile of owning and operating the truck. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)


Average cost per mile $

Explanation / Answer

C= Cost

[(C of Insurance + C of Licenses + C of Taxes + C of garage rent + Depreciation over one year + $.06*(number of miles driven)]/[number of miles driven] = Average cost per mile

($1,410 + $230 + $140 + $1,100 + $1,600 + $0.06*50,000 miles)/50,000
=0.1496

15 cents per mile

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