Kristen Lu purchased a used automobile for $18,950 at the beginning of last year and incurred the following operating costs: Depreciation ($18,950 5 years) $ 3,790 Insurance $1,900 Garage rent $1,000 Automobile tax and license Variable operating cost 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 $3,790. The car is kept in a garage for a monthly fee. Required: 1. Kristen drove the car 24,000 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 Variable operating costs ?Depreciation 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 the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) ? Automobile tax ? License costs $510 $ 0.11 per mile. $ ? Insurance costs 0.00
Kristen Lu purchased a used automobile for $18,950 at the beginning of last year and incurred the following operating costs: Depreciation ($18,950 5 years) $ 3,790 Insurance $1,900 Garage rent $1,000 Automobile tax and license Variable operating cost 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 $3,790. The car is kept in a garage for a monthly fee. Required: 1. Kristen drove the car 24,000 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 Variable operating costs ?Depreciation 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 the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) ? Automobile tax ? License costs $510 $ 0.11 per mile. $ ? Insurance costs 0.00
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Question
Transcribed Image Text:Kristen Lu purchased a used automobile for $18,950 at the beginning of last year and incurred the following operating costs:
Depreciation ($18,950 ÷ 5 years)
Insurance
$ 3,790
$1,900
$1,000
Garage rent
Automobile tax and license
Variable operating cost
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 $3,790. The car is kept in a garage for a
monthly fee.
Required:
1. Kristen drove the car 24,000 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
Variable operating costs
? Depreciation
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
the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box
for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
? Automobile tax
? License costs
$ 510
$ 0.11 per mile
$
? Insurance costs
0.00
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