Kristen Lu purchased a used automobile for $29,000 at the beginning of last year
ID: 2589536 • Letter: K
Question
Kristen Lu purchased a used automobile for $29,000 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 $5,800. The car is kept in a garage for a monthly fee.
Kristen drove the car 28,000 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.)
Kristen Lu purchased a used automobile for $29,000 at the beginning of last year and incurred the following operating costs:
Explanation / Answer
1.
2. The relevant cost in this situation is Variable operating cost. The other costs are either sunk cost like depreciation or is predetermined and will be incurred whether or not this decision is taken.
Fixed costs: Depreciation $5800 Insurance 3000 Garage Rent 1600 Automobile tax and license 800 Total fixed costs $11200 Fixed cost per mile ($11200/ 28000) $0.40 Variable operating cost per mile 0.10 Average cost per mile $0.50Related Questions
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