Kristen Lu purchased a used automobile for $15,000 at the beginning of last year and incurred the following operating costs:           Depreciation ($15,000 ÷ 5 years) $ 3,000   Insurance $ 1,500   Garage rent $ 800   Automobile tax and license $ 400   Variable operating cost $ 0.10 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 $3,000. The car is kept in a garage for a monthly fee.   Required: 1. Kristen drove the car 19,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)           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? Assume that there is no decrease in the resale value of the car due to its use.  Variable operating costs Depreciation Automobile tax License costs Insurance costs

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Kristen Lu purchased a used automobile for $15,000 at the beginning of last year and incurred the following operating costs:

 

       
Depreciation ($15,000 ÷ 5 years) $ 3,000  
Insurance $ 1,500  
Garage rent $ 800  
Automobile tax and license $ 400  
Variable operating cost $ 0.10 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 $3,000. The car is kept in a garage for a monthly fee.

 

Required:

1. Kristen drove the car 19,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)

 

 

 

 

 

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? Assume that there is no decrease in the resale value of the car due to its use. 

  • Variable operating costs
  • Depreciation
  • Automobile tax
  • License costs
  • Insurance costs

 

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