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
Related questions
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.
Topic Video
Question
![**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:** $1,000
- **Garage rent:** $1,000
- **Automobile tax and license:** $510
- **Variable operating cost:** $0.11 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 $3,790. 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:** $0.00
---
**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.)*
- [ ] Variable operating costs
- [ ] Depreciation
- [ ] Automobile tax
- [ ] License costs
- [ ] Insurance costs](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fad61fb23-6772-4c68-a944-71325d2213c5%2F546768eb-d37b-4de6-8a0e-09a0701a86db%2Fik8zvfs_processed.png&w=3840&q=75)
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):** $3,790
- **Insurance:** $1,000
- **Garage rent:** $1,000
- **Automobile tax and license:** $510
- **Variable operating cost:** $0.11 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 $3,790. 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:** $0.00
---
**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.)*
- [ ] Variable operating costs
- [ ] Depreciation
- [ ] Automobile tax
- [ ] License costs
- [ ] Insurance costs
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education