Kristen Lu purchased a used automobile for $17,600 at the beginning of last year

Question

Kristen Lu purchased a used automobile for $17,600 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 $3,520. The car is kept in a garage for a monthly fee. Kristen drove the car 17,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.) 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.) Variable operating costs Depreciation Automobile tax License costs Insurance costs

Explanation / Answer

1.

2. Only variable cost is relevant because other costs have already been occurred which gives them a nature of sunk cost

Fixed Cost per mile $0.40 Variable Opearting per mile $0.08 Average cost per mile $0.48

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