Kristen Lu purchased a used automobile for S8,000 at the beginning of last year

Question

Kristen Lu purchased a used automobile for S8,000 at the beginning of last year and incurred the following operating costs: Depreciation (S8,000 5 years) $1,600 $1,200 Insurance Garage rent Automobile tax and license Variable operating cost $40 $0.14 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 $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.) 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?

Explanation / Answer

Fixed cost per mile 0.32 =(1600+1200+360+40)/10000 Variable operating cost per mile 0.14 Average cost per mile 0.46 2 Variable operating costs Relevant Depreciation Irrelevant Automobile tax Irrelevant License costs Irrelevant Insurance Irrelevant

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