Question

Exercise 11-14 Identification of Relevant Costs (LO11-11 Kristen Lu purchased a used automobile for $32,050 at the beginning of last year and incurred the following operating costs: Depreciation ($32,50 5 years) Insurance Garage rent Automobile tax and license Variable operating cost $6,410 $3,400 $1,800 $ 890 $ 0.89 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 $6.410. The car is kept in a garage for a monthly fee. Required: 1. Kristen drove the car 25.000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.) Average fixed cost per mile Variable operating cost per mile Average cost per mile $ 0.00

Answer 1

Requirement 1 Average Fixed Cost per Mile : Depreciation 6,410.00 $ 3,400.00 1,800.00 $ Insurance Garage Rent Automobile tax and License 890.00 TotalFixed Cost (A) $12,500.00 Number of Miles (B) 25000 Avg Fixed cost per mile (A/B) Variable Operating Cost per mile$ 0.50 0.09 $ Avg Cost per Mile 0.59 Requirement 2 Variable Operating Costs Since Remaining all costs are fixed costs whether if she used her own car or rent car it doesn't make any difference they are fixed irrespective of use Variable Operating costs will only be relevant.