ch.10 Warm-up Exercise Level Three-What\'s DueW |Level Three-What\'s Due w | + ×

Question

ch.10 Warm-up Exercise Level Three-What's DueW |Level Three-What's Due w | + × | ezto.mheducation.com/hm.tpx Kristen Lu purchased a used automobile for $15,850 at the beginning of last year and incurred the following operating costs: Depreciation ($15,850+5 years) Insurance Garage rent Automobile tax and license Variable operating cost $3.170 $1,600 $800 $430 $0.07 per mile 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 $3.170. The car is kept in a garage for a monthly fee. Required 1. Kristen drove the car 15,000 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 Average cost per mile 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? (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.) Vanab1 operating costs License posts insurance costs Hints References eBook & Resources Type here to search 8

Explanation / Answer

1)

2)Since Fixed cost will be incurred whether she uses her own car or take on rent so it is irrelevant as to decision

Variable cost varies with number of miles driven so it is a relevant cost

1)Variable operating cost -relevant

2)Depreciation -irrelevant

3)Automobile tax -irrelevant

4)license-irrelevant

5)Insurance -irrelevant

Fixed cost [3170+1600+800+430]=[6000/15000] .40 Variable cost .07 Average cost per mile .47 per mile

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